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Top Trading Tips For Beginners

Top Trading Tips For Beginners

Following what has been a fascinating 2024 for both new and old markets, a lot of people are making plans to get into trading and investing starting in the new year.

It is such a common phenomenon that it coined the term ‘January Effect’, which is the tendency for the markets to be more active and for stocks to rise in the first month of the new year.

Whilst it is difficult to quantify the degree of increase, it is definitely the case that there are a lot of traders looking for a new challenge and often with some money gifted to them over the Christmas period who want to give trading a go for the very first time.

Of course, it can sometimes be very overwhelming when you get started as a trader, with a lot of terminology, technology and concepts to learn in one go, especially if you intend to apply for an instant funding prop firm to start making serious investments.

With that in mind, here are ten top trading tips to help get an absolute beginner started, from core concepts you need to know to common pitfalls to be avoided.

Learn Before You Put Money In

In nearly every walk of life, attempting to run before you can walk leads to you falling flat on your face. You need to get to grips with the markets you intend to enter, and which factors tend to affect the market or markets you choose to enter.

The factors that will affect share trading in the biotechnology sector, for example, will be far different to those that will affect currency pairs in the foreign exchange (forex) market, which will themselves be different from investing in the commodities market.

There are a lot of valuable tools available, including plenty of guides on the substantial new lexicon used by financial traders, what certain movements mean and how to interpret various data sets.

Theory, Observation, Practice

There are three main ways to learn, regardless of the subject, and those three stages involve reading and studying theory, observing how others do it, and then practising it in the safest possible environment that is also representative of the skill you are learning.

These are the three stages of learning, largely in this order, that beginner traders need to adopt in order to succeed with a live account. They need to learn what they can, look at how other people trade, either through conversions or by reading trading journals (more on that later), and get a practice account before going live.

A lot of the best prop firms are more than aware of this, providing a lot of resources to help people who are getting started to learn the ropes, network with other traders and practice using their platform.

Most Of Your Decision Making Is Away From The Market

Setting up a trading plan is the first and most important step to becoming a successful trader, and one of the big reasons why traders swear by this approach is that it front-loads most of your decision-making and analysis, creating an analytical approach that will help you to succeed.

By establishing your trading plan this way, and testing it in a demo account to ensure that it is fit for purpose before going live, you can put yourself on the road to success, and focus your mental energy on times when your approach might possibly need to change.

Set up a trading plan, a risk management strategy and a set of short and long-term goals ahead of time, and make decisions based on the goals you already have established.

Give your trading plan at least ten trades before you decide to make significant changes.

Avoid Emotional Trading

One of the biggest vices a lot of beginner traders suffer from is emotional trading, which is when a trader makes a financial decision based purely on a powerful emotion at the time.

There is a saying that the only two emotions on the market that matter are fear and greed, but using them as your inspiration to trade is a recipe for disaster, as it typically leads to making the wrong trades at the wrong time for the wrong reasons.

Interestingly, both fear and greed can lead to the same mistakes for opposite reasons; greed could stop a trader from exiting a position once they hit their agreed-upon target price thinking that it could go higher.

Conversely, the fear of missing out could cause a trader to try and catch a rocket on the ascent, minimising potential gains at best.

What is worse than both of these, however, is trading out of anger, sadness or hurt feelings, something that can be extremely consequential and has wiped out many portfolios in the past.

Never Trade Impatiently Or Vengefully

A connected idea to this is the concept of revenge trading. This goes beyond emotions overriding rational, objective decision-making and often enters the realm of costly impulsiveness.

After a bad trade, the temptation can sometimes be to immediately get back onto the floor and make a quick trade. One or two quick day trades will surely make back the drawdown amount, right?

In gambling circles, this is known as chasing losses and is typically the psychological phenomenon that turns a bad beat or bad luck into something that can devastate an individual.

Investing is not gambling, of course, but the psychological concept of wanting to reenter the market and avenge an unfortunate turn still remains.

Most firms are designed to give you the space to just turn off the terminal for the day and come back to your portfolio with a different approach.

Know When To Hold And When To Fold

On the subject of gamblers, the legendary Kenny Rogers once sang that you have to know when to hold and when you should fold and back away.

In the context of trading, this simply means that you need to know the best times to hold on to stocks that appear to be struggling and when to walk away from a trade, most of the criteria for which should be in a trading plan.

Sometimes the best action you can take is inaction, although it takes some experience to understand how to effectively wait for the right moment. It is possible to make the right choice at the wrong time, and the wrong choice at the right time.

A good example of both comes courtesy of one of the greatest forex traders ever, who despite this managed to break this and several other beginner rules, costing himself billions in the process.

Stanley Druckenmiller was the mastermind behind the greatest forex trade in history, a gigantic short play on the Great British pound that broke the Bank of England, arguably changed the geopolitical history of the United Kingdom and made the Quantum Fund billions.

Unfortunately, after several currency crises in the late 1990s, Mr Druckenmiller pivoted into the technology sector during the dot-com boom. He made several mistakes when navigating a very unfamiliar market.

He was correct that the dot-com bubble was set to burst, but lost a lot of money with bad timing. He made that money back and got rid of his technology investments before buying into the market an hour after the NASDAQ peaked, losing $6bn in a matter of months.

Set Up A Trading Journal

In the field of mental health, journalling is an extremely common practice that helps improve emotional well-being through putting stressful, traumatic and difficult moments into words.

A trading journal can help in a very similar way by allowing traders to see, at a glance, what has historically worked and what has not in the past, as well as any relevant thoughts regarding the reasons why a particular trade was entered into.

Judge Performance By Discipline Rather Than Revenue

It is easy to think of the market purely through the lens of wins and losses, but doing so can actually lead to remarkably poor trading performance, especially if an outlier result leads to the wrong lessons being learned.

As the lottery proves, anyone can win the jackpot once, and it is true that someone can end up in the right place at the right time to end up with a massive gain despite the prognosis and analysis from the market.

Conversely, it is possible to do everything right and end up losing money, particularly if the market itself has hit a slump. 

This makes judging trades based purely on profit and loss relative to initial price a limiting approach that can solidify unhelpful trading practices.

Instead, using your trading journal, explore your trades by how consistently they match your trading strategy, as that is a better sign of long-term success.

Never Risk What You Cannot Afford To Lose

Risk management is key to any long-term success in trading, and many prop firms have quite strict guidelines when it comes to making trades to ensure that you are diversified and protected enough from the potential harm of the market.

Ultimately, do not risk more than you can afford to lose and avoid markets and trading strategies which inevitably require high-risk approaches.