Today stock markets offer ample profit opportunities, and trading on these markets is one of the fastest ways to prosperity. The risks, however, are just as high as potential profits. Although if trade losses were that much greater than the profits, we would not see so many active and successful traders.
really catch that luck.
The other 95% never see astronomical profits. However, the good news is that their efforts are still not in vain. Failure to earn a million in a day is neither a fiasco, nor a cause for disappointment. Lots of people never make a fortune. However, they do secure a stable monthly bonus for their paycheck for the rest of their lives! They do not manage millions of dollars, but they maintain a respectable financial level that affords them a mortgage-free apartment and travel vacations three times a year.
Does not sounds too bad, right? And that is just how well a moderately active trader can do by trading several days a week. That is the level available to anyone who is willing to pick up trading. The entry barrier is very low — no specialized education is required, and you do not have to kick off with a massive starting capital. Trading is for people from all walks of life. For most of them it is just a lucrative hobby. To get started, you will have to familiarize yourself with some basics — understanding the way the market operates, and how the trades are made.
As your knowledge expands, youwill be able to improve your tradingresults.
Trading methods
As your knowledge expands, you will be able to improve your trading results. In this book you will discover the basics of starting trades, market monitoring, and searching for the most profitable conditions. So, read on and explore the new financial opportunities! First, you will have to pick the stock exchange where you will start trading. Your options are:
• foreign exchange, where various currency pairs are traded.
• stock exchange — a platform for operations with stocks, obligations, and other securities.
• commodity exchange is a place where you can trade in goods and raw materials, including oil and gold.
• derivative markets, where futures, options and other financial instruments are traded.
Each of those options has its own unique features, pros and cons. Choose the one that is right for your starting deposit volume and the goals you aim to reach. Each of those options has its own unique features, pros and cons.
Choose the one that is right for your starting deposit volume and the goals you aim to reach. However, trade on all these platforms follows the same basic principles. You should learn them before you start trading. Let's review them one by one.
There are three main trading methods:
1. Scalping and day trading
2. Medium-term trading
3. Long-term trading
Beginner traders often flock to the day trade. From psychological perspective, it is no wonder why: beginners always want to make a quick buck.
Let us now review each type of trade:
• When scalping, choose pairs with a smaller spread for trading. Spread is the difference between the best purchase price and the current price of the asset at a specific moment.
Highly volatile assets can also bring in a big score. Volatility is a range where the price on a specific asset oscillates over a specific period of time (day, month, week, year). Volatility is what allows you to make a profit when the market turns.
When scalping, it is necessary to schedule around the times of publication of important macroeconomic indicators or reports of representatives and heads of central banks.
• Day trading implies opening and closing a position within a single trading day. It's applicable to most intraday timeframes. This tactic is different from scalping — oscillations of take profit and stop losses are much bigger. What does it mean? Traders commonly employ stop orders when they trade. You can set stop orders to open and close deals. Stop loss and take profit are two important algorithms for closing trades.
Stop loss reduces your losses. It closes the trade automatically when an asset reaches a certain pricepoint where it is no longer profitable to the trader. It's a good defence against the course that jolts the wrong way.
Take profit, in turn, fixes profit at a certain level. Take profit is a direct order for the platform to close a trade automatically when a certain price is reached and a predetermined amount of profit is thus secured.
This kind of order helps a trader to fix the profit volume and cut losses, ensuring stability of the trade result.
Working with stop orders should be considered the main principle of effective money management. They allow a trader to secure an expectedly good result without checking trades manually every hour.
For day trading, it is recommended to schedule around the time of news releases and change of trading sessions. The same applies when American traders start their operations — specifically, time when Europe is still trading, and America has already started. This method is favoured by novices and professionals alike. Closing all positions within a single trading day has obvious advantages for beginners.
That's how one protects themselves from risks of overnight situation changes and incurring losses. Further acquaintance with classic market analysis methods will help you simulate an overall market picture over longer periods.
• Medium-term trading implies being in an open trading position for one to several days, or even a month. This approach takes the elder timeframes into consideration. These are timeframes of four hours or more.
This method has a distinct advantage: adjustable ratio of mathematical expectation of profit to potential risks.
This method has a much higher profit potential than day trading. When you do midterm trading, you can participate in trade movement, which is what you cannot do with day trading. Medium-term trading allows you to sit out the news release in an open position, protect a portion of the profit, and then add to an already open position during a trend movement. Combined, all these things increase trading efficiency.
• Long-term trading is rarely used in foreign exchange market; it is more suitable for stock market. However, if a trader understands inter-market relationships and can use fundamental analysis,the strategy will be useful to them in currency market as well. In this type of trading, trades last from several months up to a year. When using this method, swap size for the yet-to-be-opened positions should be taken into account. Let us see what it means.
Any transaction of purchase and sale is accompanied by a corresponding resale or repurchase. At the same time, a stake is placed on increase in exchange rate of the main currency and a decrease in quoted one. The same applies to stocks and other financial instruments.
The size of that stake is called a swap. In long-term trading, this indicator should be determined in advance in order to assess the possible profitability of a transaction before opening a position. From a psychological perspective, trading over prolonged time intervals is less stressful to a trader. This also eliminates the need to frequently use a terminal. This makes trader's work calmer and more comfortable, but the deposit should have a decent margin of safety for this tactic to work adequately. When trading in the long term, you can get into a prolonged drawdown — a position may take a long time to form.
The main thing to decide is how you will behave in the market and manage your position. You should do that before you start trading for large amounts.
