Trading for beginners
- The vast majority of unsuccessful traders do not have a definite plan! They do not know what they want from the position, do not know why they enter and why the position is closed. Even if they have a plan, they do not keep to it after the position is set;
- Usually they close profitable positions too early and keep bad ones for too long. Often, phenomenal open positions are closed in fear with minimal profit in just a few minutes before a big movement in the market;
- After several successful positions, they forget about risk management and start trading based on "anticipation", not a sound strategy;
- Traders are trading too big lots or too often for the size of their account;
- Many try to "trade against the market", are engaged in scalping. Even if at the first stage they are successful, sooner or later, this trading strategy leads to failure of their account;
- Many trade without predefined risk, do not use stop orders, become averaged by adding to losing positions;
- Lack of knowledge about the market and lack of start-up capital does not allow many traders to admit their mistake and come out with minimal losses. Instead, they hold the position until the small losses become enormous as a percentage to the size of their account and only after that they close;
- Traders are trading with emotions that do not allow many of them liquidate positions with minimal losses and cause them to get out of profitable positions too early;
- Trading of too volatile markets with insufficient size of the account;
- Lack of discipline forces traders to trade when they want. They cannot wait when the market gives them an opportunity and a good chance of successful position - they start to trade when they turn on the computer.
- First of all, completely forget about such concept as intuition. In trade, it cannot help you. Intuition is a vile and deceptive sense, which failed many experienced traders. In addition, the intuition is based solely on experience, and you, as a rooky, do not have this experience, and therefore no intuition can be applied. If you feel something - this is not intuition, but just some of your hidden desires. The market does not have to satisfy your desires, and therefore dismiss them right away and get to a sober calculation. Intuitive trade is a sure path to failure, and all the successes that it brings are only temporary and accidental. For system work this approach is unacceptable;
- Forget also about greed and passion. The market owes you nothing, and it is useless to demand anything from it. Market is not a means to achieve your goals; you cannot manage it or subject it to your will. All you can do is to take advantage of the opportunities that it provides to you, but they are still yet to be found. Working in the market is a methodical analysis, observation and good judgment, and any emotions and desires only hurt in trading. The same with rush. If you missed the opportunity, it is better to give it up completely than to try to use it behind time. Take your time, the market is not going anywhere from you, better focus on finding other options that it has to offer;
- Do not try to outsmart the market. For this purpose one must have enormous experience and usually grand capacity. It is a thankless job to hope that the market will break the rules to suit you, well, the same relates to the sense of hope in general. What is much better is to learn the rules and to act within them. In this case, your actions will become systematic in nature, and it will be much easier to achieve success. If you're trying to cheat - the market will crush you. Here, as with intuition, if lucky once, it is just a coincidence;
- There is also no point in being afraid of the market. Whatever they say about funds rotating on the market, about who earns on whom and at whose expense the market lives, remember – no one hunts your money specifically. Fighting the market is not necessary - it is not a rival. It does not care - about you, as well as about you fighting it. If you oppose it – it will sweep you away without noticing you, if you walk in parallel with it – you will be able to get the result. If you already had a bad experience, or complete failure- it should not raise fear of the market, for only you are the only one to blame. You made a mistake, miscalculation, ignored a rule, failed to keep pace with the market, to keep up with it, and as a result - it hit you with its tail. But it is not the fault of the market, the fault is yours, and the reason accordingly should be sought inside you;
- The market is a system of risk transfer. Any trade is your consent to the risk of losing some money in exchange for the chance to earn some money. Your task is to make so that the risk of the loss was paid in the best way;
- The market is not specifically trying to hurt you, but in many cases, the market is not just a pricing mechanism but also the actual site of the battle where the income of one is the loss of others. False breakouts, hiking for obvious stops - these are examples of such aspects of trading;
- It is not recommended to trade if there are no absolutely clear, mechanical rules for entry and exit positions. You have to become a strict system trader;
- Any idea is tested in sample and out of sample. That is, - first, the idea is formalized and tested on a "piece" of the history of prices, then, in case of good result, it is necessary to test it on another "piece". This eliminates "magic" combination of system parameters / indicators which show excellent results in history, but immediately begin to fail you in the real world. Therefore, any idea is tested on demo, to test and to avoid possible adjustment of parameters to the history;
- The most important component of any system is stop loss;
- The surest way to find an interesting system is to find similar motions and to try to understand what preceded them;
- A good system very often has logic based on the behaviour of certain market participants. Try to look for such systems, they live long;
- Sometimes, the market is like a lottery. There are times when people starting from one thousand dollars get in the trend, pyramid and get hundreds of thousands of profit. You can try to do the same and win in the lottery. The only advice to you on the experience of thousands of millionaires-day-traders of dot-com era who are now out of money, - never try to repeat it. In trading it is sometimes difficult to distinguish good fortune from own genius. Many have failed and they had to pay for it a very, very high price;
- In trading, as in any other kind of business, you cannot stand still. The market may become absolutely impenetrable to your profit methods tomorrow. For this you must be prepared
Inside all brokerage platforms, providing access to customers to exchange and OTC markets there are different in complexity, but very important program modules. This is the so-called order entry window. Order in this case is the form of trade customer orders to his broker, to engage in certain transactions under certain conditions. In exchange industry there are certain standards and most financial instruments (except for the most exotic) are bought and sold with the help of a group of standardized orders. Standardization allows you send such orders not only through the electronic platform in the form of computer code, but also by means of a phone call from a client to his broker.
The basic order types that are supported by trading platforms in the financial markets:
- Market Order - the most frequently used order. This is a good type of order, used as soon as you have made the decision to open or close a position. This may prevent the client from having to chase the market, trying to enter or exit a position. A market order is executed at the best possible price available at the time of trading in "The Pit" (exchange).
- Limit Order - an order to buy or sell at a certain price. Limit orders to buy are placed below the market, while limit orders to sell are placed above the market. Since the price cannot go up high enough or drop low enough to activate a limit order, the customer can miss the market if he uses a limit order. Execution on this order cannot be guaranteed, if market changes take place in a great pace (usually on the news) or the number of applications for this price was too high. In the latter case, your order can be failed or executed only partially.
- Stop Order.Stop orders can be used for three purposes:
- Minimize losses on long or short positions;
- Protect the profits of the existing long or short position;
- Open a new long or short position.
Stop order for purchase is placed above the market price and the stop order for sale is placed below the market price. As soon as the "stop" price is concerned, the stop order is regarded as a market order and will be executed at the best price. When buying, if the price of the order is higher than (above) current market price it is stop order for purchase. When selling if the price of the order is lower than (under) current market price it is a stop order for sale.
At the moment of touch by the market of the price established in the stoporder it becomes a market order with the exercise of the price stated on the rules of market orders. In the case of a gap, instead of the price stated in the stop order price, the price of "transformation" of the stop order into market order becomes the first traded price after gap.
- Stop Limit Order. Stop limit order is actually composed of two prices, as an attempt to gain more control over the price at which your stop order must be executed. The first part of the order is written like the above stop order. The second part of the order determines the price on the limit. This indicates that once your stop order works, you do not want the order execution at the price worse than the price of limit order. Stop limit orders are not typically used when trying to exit a position. If the customer does not give a price for a limit order, the "stop" price and the "limit" price are considered identical.
- Stop Close Order (SCO)."Stop" price for SCO is triggered only when the market touches stop during closing of the trading session. The disadvantage of this order - fast market in the last few minutes of trade may execute an order at undesired price. It can, however, protect the client from the execution of the order due to adverse price fluctuations during the day.
- Market If Touched Order (MIT). MITs are the opposites of stop-orders. MITs-buy order is placed below the current market price, and the MITs-sell order is placed above the current market price. MITs-order is usually used to enter the market and start trading. MITs-order is similar to a limit order in such a way that a certain price is placed in the order. However, MITs-order becomes a market order once touched or passed on the price limit. Execution can be either at this price, or higher or lower than the original quoted price. MITs-order will not be executed if the market is not able to touch to price determined in MITs-order.
- Good Until Cancelled Order (GTC). GTC-order (or open order). Used in conjunction with a limit order or stop order. GTC-order will remain valid and active until the customer cancels the GTC-order, or it becomes executed, or the contract expires. If no order is defined as the GTC-order it is the order for the day, the validity of which will expire at the end of the current trading session if it is not executed before or if it is cancelled until the close of trading. GTC-order cannot be cancelled automatically!
- One Cancels the Other Order (OCO). One (order) cancels the other. When one order is executed, the other is automatically cancelled.
- Market on Close (MOC). This is an order that will be executed during the final seconds of trading at any price, which will be available at this moment. PLEASE NOTE: BROKER – MEMBER OF EXCHANGE RESERVES THE RIGHT TO REFUSE MOC-ORDER FIFTEEN MINUTES BEFORE CLOSING, depending on market conditions.
- Market on Opening (MOO). This is an order where the customer wants it to be executed at the opening of trading at the best price available within the price range opened. Not all exchanges recognize this type of order.
- Enter and Cancel Order. All orders, except for market orders can be cancelled and replaced by other orders if priority is not filled prior to cancellation.
- Spread Order. The client is willing to take both long and short positions in an attempt to make profit, as the price differential or "spread" between the two prices. The spread can be established between different months of the same product, between related products or between the same related products that are traded on two different exchanges. Spread order is exercisable at the market in the best way and you can specify where you want it to be executed, or when the price difference between the products reaches a certain level (or higher premiums).
- Fill or Kill Order (FOK). Fill or kill order is used by customers who wish to immediately execute the order, but at a specific price. Broker - member of the exchange,will offer «bid» or «offer» three times and immediately return either executed or unexecuted order, as impossible to execute.
CFD - a "contract for difference" concluded between you and your dealer. This contract envisages who pays what depending on the difference between the asset's price at the close of the contract and the price of the asset at the time of the opening of the contract. CFD is not a contract born and circulating in the exchange like futures and CFD dealer is not a futures broker. And if you explore a little bit of history of the origin of CFD, you will find out that this tool originally appeared exclusively as a means of avoiding of the so-called «tax duty». This special tax obliged any respectable Englishman, trading shares on LSE to pay a lump sum from the trade turnover. Considering that formally the deal with CFD is not a deal with the share, and therefore it does not fall within the tax.
It is important for rooky traders to understand the main differences of exchange-traded futures from CFD:
- Price of the futures is established on the stock exchange and it is one and unique in each and every moment of time for all traders around the world.
- DC dealer sets the price of CFD. It is close enough to the exchange price, because any CFD is based on an indicative exchange price. But CFD clients see in their monitors a quotation with an extended spread. While on the stock exchange itself, the trading method provides for a minimal spread and broker's commission. In real situations, spreads on CFD are often "extended" by the dealer, depending on the situation, and in fact it turns out that the cost of service of the contract is higher for a customer than if the client had himself traded futures for the same asset on the stock market. Spread on CFD is ALWAYS higher than the exchange spread on futures + broker`s commission. CFD trading is more expensive, and significantly.
- Clearing house of the exchange, where trades are conducted, acts a guarantor of obligations performance on the futures.. And these are usually the oldest founders of the futures exchanges, which are controlled by the controller and value their reputation.
- The guarantor of obligations performance for CFD is a dealing centre, which "released" its CFD to its customers.
- Exchange traded futures do not assume day rollover during the life of one contract.
- CFD may assume withholding of swap every day.
- Futures, by definition, are displayed on the real stock market, and therefore there is no conflict of interests between the client and the broker.
- CFD can be hedged ("output"), in part, or may not appear at all on the market, and therefore there is a conflict of interests between the client and the broker, for potential losses of the customer can increase profit of DC.
- Transactions in futures are controlled by regulators NFA, CFTC or FSA and in case of client`s problems, everything can be resolved through them.
- Transactions with CFD (with the exception of British companies regulated by FSA), are governed by these companies themselves, and they can also resolve any dispute not in favour of the customer.
- When you trade with a futures broker, your money is on a segregated account at the bank, and if the broker goes bankrupt, then all the money will be returned to you safe and sound. The broker cannot physically take possession of them.
- When you trade CFD, your money is combined with the capital of DC (except for British companies regulated by FSA). If the DC goes bankrupt, the refund can be problematic.
So, if it is not critical for you that the cost of trading in CFD will be higher than on the exchange traded futures, you can choose the regulated broker and work with this instrument. In return, you will be able to trade many tools at much lower requirements for guarantee deposit on the account.
FXFINPRO Capital company provides an opportunity for our clients to try to work with both exchange traded futures and CFD. The dealer of CFD contracts offered in our platform is an English company regulated by FSA, therefore we have no reasons to worry about safety of assets.
- Futures broker is a financial intermediary, for and on behalf of a client engaged in the purchase and sale of securities (futures contracts, options). Stockbroker is only an intermediary and in all situations, working with regulated exchange markets, it is controlled by the regulator, in part of compliance with trade regulations, and customer service rules. Assets acquired by the broker on behalf of his clients, cannot be the property of the brokerage company and all assets of the company and its customers are always placed on separate accounts. For services a broker gets a commission and does not act as a party (counterparty) of his client in the transaction.
- Dealer is a person or company performing exchange or trading mediation at its own expense and on its own behalf. It has a place on the stock exchange (optional), makes quotation of securities and other assets. In the case of dealing centre (DC) it forms a stream of quotations to customers, accepts funds of customers on its accounts and pays out compensation. Revenues of the dealer are formed by the difference (spread) between quotations for the purchase and sale of currencies and securities (CFD), and also due to changes in their rates in case of loss of the clients.
This means that the broker is an organization that brings its customer directly to the exchange. And exchange is a place where the price is formed in a democratic way, and this price is one, and is known around the world at any time. In case of possible abuse of a broker with price indicators, these actions can always be challenged in the controlling bodies. A broker under no circumstances can give his price or quotation to the client, he must issue price and exchange quotation and bring the order of the customer directly to the exchange trading.
The dealer is an organization that is authorized to quote rates (contracts for differences of shares, commodity futures, financial instruments). That is, when working through a dealer customer orders at the discretion of the dealer can be displayed directly on the stock exchange (the bank), or taken to the balance of the dealer. The dealer has the right to give its price for the customer. A direct example of this is the insertion of spread in stock prices or commodity futures, and then there come out CFD tools. The client enters into a contract to buy or sell CFD with the Dealer. FOREX and CFD markets are not centralized exchange markets; therefore each dealer company is, in fact, an exchange in its own for their customers which is not always accountable to any regulatory and supervisory institutions. On the one hand, this situation creates a fertile ground for various forms of abuse, but on the other - allows speculation on exchange rates for the players with the minimum amount of accounts.
The trader entering the financial markets through the broker service of FXFINPRO Capital company, has access to an endless number of different instruments. The big advantage for him is that access to all markets and instruments the trader gets inside professional multi-market platform FXFIN Protrader. Being our customer, you can operate all markets and instruments, sequentially or simultaneously. The fact that they are traded on a number of independent exchanges in different cities and countries is not a problem.
The most indicative in terms of latitude and geographical coverage of basic tools and markets are futures. And the undisputed leader in terms of the interest of investors and, as a result, trading volumes are now financial futures. The first two places share stock indices and interest rates, and the third place belongs to energy. The fourth and fifth - commodity and currency futures. Precious metals are also very popular now.
All existing instruments of the futures market can be divided conventionally into the following categories:
- Stock index futures: U.S. (S & P 500, Nasdaq 100, NYSE Composite, Dow Jones Industrial), European and other regions and countries.
- Futures on interest rates: U.S. Treasury bills, or "bonds" (2 -, 5 -, 10 - and 30-year), Eurodollar, U.S. and European bank interest rates, foreign exchange rates, real estate indices and more.
- Currency Futures: Euro, British pound, Japanese yen, Swiss franc, Brazilian real, the Russian rubble and many others.
- Energy Futures: Petroleum of multiple brands, natural gas, oil fuel, petrol, ethanol and others.
- Futures for precious and non-ferrous metals: Gold, silver, platinum and palladium. Copper and aluminium.
- Agricultural futures: several varieties of wheat, corn, soybeans and soybean oil, beans, rice, and other products.
- Futures for animal products: Cattle, beef, pork, milk and butter.
- Futures for food and other products: coffee, cocoa, sugar, orange juice, as well as cotton and wood.
- Futures on individual stocks of the stock market.
If we talk about the world stock markets, it is impossible, within the format of this site, to give a list of top shares. But all shares of all the world's leading producers of goods and services are included in one or other regional share index and our clients have full access to the work with shares on the major stock exchanges in the world.
It is worth mentioning that many of the tools in one form or other are traded simultaneously on multiple markets. So, for example, a trader can at the same time trade gold on the spot of FOREX market, trade gold contract on a futures exchange, or trade shares of the exchange GOLD fund.
In FOREX market dozens of currency pairs are being traded, of which only six are basic, but all of them are linked through two major currencies. Diversification in such a market is not possible, it does not have transparency, besides lack of government regulators puts the reliability of long-term investments in doubt. But convenience and speed of opening of accounts and their replenishment, plus popularity of platforms and small start-up capital - all this made FOREX the most popular market where traders take their first steps and learn the hard way. Unlike OTC FOREX, the U.S. stock market quotes securities of 11,000 companies worldwide, of which about 500 (included in the broad market index SP500) are the most interesting companies for private investors. This market is well-regulated and is under the control of SEC (U.S. regulator that controls the activity of the securities market in the United States) and the safety of customer funds is at the highest level. But the process of investing in it is very specific - for in-depth analysis it is desirable to study technical analysis and reporting, as well as financial performance of each individual company. In addition, the level of initial deposit for entry into this market is rather high, because the use of additional loan funds by traders in the form of leverage is limited by law and most of the stock portfolios are formed from their value at par. U.S. derivatives market, where regular futures and options trading are conducted, has a significant advantage over the FOREX and stock markets. It quotes more than 500 different futures contracts, of which on more than 100 active trades are held regularly. Derivatives market, unlike the currency one is subject to state supervision and is clearly controlled by the regulators of the CFTC and NFA, and all accounts on it are insured, so the safety of customer deposits is its essential attribute. The exchange trades of futures and options are absolutely transparent, the prices and volumes of deals are available for everyone - you can see them on the sites of the exchanges. Another important difference of the derivatives market from the currency market is an opportunity for a wide portfolio diversification, since the client has access to all financial instruments from different, unrelated to each other sectors - from agriculture products to the non-ferrous metals, from the government bonds to indices of electrical energy industry and the environment. By the way, both currencies and stock market indices are also included in this extensive list. It is also important that to begin self-trading in the U.S. derivatives market you need to have a lower amount in the account than to enter the trading in securities.
There are many instruments around the world and all exchanges. A rooky trader often asks this question, trying to understand the possibilities of various instruments of financial markets. And here again it is crucially important which goals rooky trader sets for himself, his readiness and experience, and the amount of capital that can be used in the trading account. Over the past decades, the industry developed several conventional types of traders who trade in the markets of financial instruments:
- Traders - amateurs, who have small starting commercial capital and set yourself a goal to get the hang of trade and, over time, to take the path of a professional trader and earn a living trading. For them, it is sufficient for the initial stage to test themselves with the trading deposit $100 to $ 10,000, with gradual acquisition of knowledge and skills or rejection of the ideas of trading forever. Typically, this group of traders chooses a set of instruments from FOREX and CFD markets. The current industry of brokers in these markets provides an opportunity to work with minimal deposits. The trader quickly by opening an account and placing money can try to master the trade with a wide selection of tools using small amounts of money. The downside here is that the FOREX market is for the most part an unregulated market, in terms of strict and transparent rules. In addition, the availability of a large leverage in this market is in most cases the "catalyst" for the loss of money by rooky traders. But, in any case, this market exists and works and if you want to try your hand without risking large sums, then go directly to the broker FXFINPRO Capital. For this group of participants, trading is not the main source of income. In the list of available markets, we provide high quality access to FOREX market and CFD, with small amount of start-up trading capital. More details about the tools and capabilities of these markets, you can find on the relevant pages in the Education section on our website.
- Traders - semi-professionals who, having worked their way of study and development of methods of trading in the markets, are moving from non-regulated OTC markets, such as FOREX, to regulated exchange markets of futures or stocks. In this case, as a result we have self-sufficient traders, who put emphasis on transparency and controllability of the processes of trade and reliability of saving money in the account from the risks common for unregulated markets. Such traders work with a much broader range of possible tools in the market environment of professionals, but it requires bigger funds on the trading account. But such an account is opened with the regulated professional stock brokers whose activities are transparent and monitored, and the conditions of asset pricing are the same all over the world for all traders. For this group of participants, trading is the main source of income and active amounts of trading accounts start at 30-50 thousand dollars. Our company provides access, through a single multi-market platform to all the world's leading stock exchanges, to hundreds of popular commodity contracts and thousands of shares of the world's leading producers of goods and services. More details about the tools and capabilities of these markets you can find on the relevant pages in the Education section on our website.
- Traders - amateurs who do not make it an aim to be a professional trader, but just try to obtain skills of investing of surplus funds in the assets of the classical trend of medium-and long-term investment. Most of them are people who earned money for life in other areas and now trying to lead their own personal portfolios of assets by investing primarily in stock and bond markets for a period of one year or more. Such traders – investors spend 2-3 hours a day to work with financing markets and make use of the services of quality analysis tools and recommendations or self-learn method of analysis, using long-term daily charts of the stock market and funds. For this group of participants, trading is not the main source of income and the amount of accounts with which they work starts from 30-50 thousand U.S. dollars.
- Traders - professionals who trade professionally as part of banks, trading houses, prop companies and various investment and hedge funds. These traders work in accordance with the strategy and tactics of their employers, and for them, this work is also a major source of income, and scrip under the personal control of these traders start from an average of 100,000 U.S. dollars.
- Investors - professionals that do not trade on their own, but nonetheless well-versed in the global market for financial intermediaries and professional institutions engaged in asset management. This includes an industry of joint and hedge funds, various investment funds and banks, as well as professional management companies and professional individual traders. Thus, a professional investor invests and distributes its portfolio of assets among several professional participants, asset managers in the various markets and instruments.
This division is rather arbitrary, but it shows the major market participants of trading in financial instruments around the world. This list does not include companies serving the trade process (exchanges, brokers, suppliers of quotes and software, etc.).
Therefore, we recommend to all our potential clients to set objectives, expectations and financial possibilities and consequently select a tool from the relevant sections of the exchange markets or markets of OTC trading. All of them have their advantages and disadvantages, but stock market is a market of professional participants, and that is why here you see other requirements both to the capital and to the level of experience and skill of the trader.
In any case, we are ready to assist you in the selection, so please contact us and together we will discuss your question.
The answer to this very question at issue in the exchange space is ambiguous. There are individual professional traders, trading skills of which are perfected over many years, through continuous self-work and work on their systems. It is pointless to compare their performance with the performance of rookies in terms of the income. In average number of examples and cases that we were able to record for the time of our work in the financial markets, as of today the maximum you can squeeze out of the market without the risk of losing capital - is 30-50% per annum.
Steadily increasing profitability from month to month in real life is quite rare, not to mention "hyper-mega-traders" with profitability of several hundred per cent. This is at best work of chance as in casinos, where a risk of loss of all investment is higher than the probability to earn something.
Another important factor, to what extent the income obtained by a trader from work in the financial markets will cover his current living material needs. Here lies a very serious pitfall for rookies and ultimately many questions come to the starting amount of initial capital. If you are a newbie and have just taken a path of acquisition of skills and experience, then keep in mind that the statistics of loss of the majority of money in these markets is relentless. And if you want to earn money from trading for living, earning tens of per cent in month from your deposit, then most likely you will soon join the army of those departed from this market with losses. If you set yourself realistic goals and thus understand what should be the sum of the start-up capital, then you should just concentrate on not losing it on the first stage and earning something on the second.
Trading system is the main "weapon" of a trader in opposition on the professional financial markets, and it is something without which it is IMPOSSIBLE to enter the market with real money on your trading account. With the help of the trading system you will go through all the steps of the trade process model. It is your trading system which will bring you the expected trading profits and save you from devastating losses in the event of your mistakes. It will give you an important signal to enter the market, and determine even more important level to exit the trade.
Thus, our trading system is a set of tools that monitors the market and interprets the obtained information from it in signals clear to the trader, based on which, the whole further chain of solutions is made. And what is important here is that in the trading system there is a set of systematic rules, which define the objective conditions for entry or exit from trade, but not personal feelings, forecasts or assumptions of the trader.
If a trader develops and tests his own stable trading system for a long period of time, it often happens that such a system is later automated in part of the decision-making process. The trader receives a visual or informational signal, indicating the appearance of a situation within his system with the potential entry or exit to the position. Or the trader, at his own choice, completely automates the process of decision-making by such automation module (so-called trading robot) and the trade will be conducted entirely in the automatic mode. This will be an automated trading system (ATS), also called mechanical (MTS).
There exists a variety of trading systems. These are so-called trend ones, which operate at the unidirectional movement of the tool on the markets, there are systems for work in the channels, on the breakdown of volatility, on pullbacks and many others. It is important to understand that in the world there are NO universal systems that will work equally well in trend on the markets and in «quiet» period. Therefore, a trader needs to apply his system only in those states of the market, where it is effective and profitable.
Dozens of different trading systems are published and discussed on specialized forums all over the world. Therefore, these resources can be very helpful for rookies in learning and selection of some basic components of personal trading system of the future. It is quite unlikely that you will be able to choose and ideally use someone else's system because the system needs to be developed individually – in order for you to fully understand how it works.
Variety of tools for the trading system can be used. Someone follows the trend using the medium, someone draws up a channel and works from its borders, one defines a U-turn with the patterns or levels, etc. A rooky trader can use any of the tools, the main thing - it should be comfortable and clear for you. The trader can also combine or use multiple tools at once.
The process of selection of tools for trading system can be done by the trader himself, or he can take advice from other traders. But at the same time you yourself will have to install settings, look for the signals and determine the rules of operation. Most rooky traders make the typical mistake - they apply various indicators to the schedule, and try to see any patterns in their performance on different parts of the graph. This approach is initially wrong, cause and effect are confused here, and so - you may need an infinite amount of time before you find something that will suit you.
Model of work of any trader can be divided into several stages:
- A trader using an internet trading platform (special computer program), provided by his broker, monitors the situation on the market. At that, such a platform for access to financial markets as a rule contains some interface and opportunities for technical and graphical analysis of the graphs of prices, as well as for buying \ selling of some tools. Trader seeks first of all the opportunities and moments to buy or sell any trading instrument, i.e. looks for the potential so-called entry areas (and then exit ones) into the trade.
- In accordance with the current situation, the trader examines potential areas of trade and makes preliminary assessment of options. He then carries out calculations based on which he establishes a potential entry point into the market and the level of expected profit, the so-called the target level.
- Having determined the point of entry, the trader through the trading platform software interface "enters" into the market (buys or sells an instrument) and takes the necessary steps to protect his position from uncontrolled losses (puts protective stops Stop Loss). As a result, the trader finds himself in an active position and he can observe and analyse the course of the performance of his calculations of the transaction.
- In the process of finding a trading position and depending on the situation, the trader can make necessary additional steps to manage this trading position. He can move his protective stops (stop loss) in the break-even zone, he can partially fix profits and close part of the position, increase the size of the position, etc. until achievement of results acceptable for himself and his system.
It is essential in this simple algorithm that all these steps of the trade process are important in this particular order. It is highly recommended not to violate this order, for example, first "jump" in the market, and then conduct the analysis. It is very important in trading to find and evaluate trade situation in the right way.
Contrary to popular opinion, that it is required for a trader to have higher education (preferably economic), knowledge of statistics and probability theories, the foundations of analysis and analytical skills, we dare say that it's NOT NECESSARY. They are good to have, but not necessarily! Often, presence of such knowledge can play a cruel joke with the rooky trader and give undue confidence in the correctness of trading decisions based on academic knowledge. Of course, it is required to be able to read, write, use a computer at a basic level and perform basic arithmetic operations. But more important, in our opinion, is the ability to think and wait and rigid self-discipline. In many cases (except for work in professional companies) you do not have chiefs and supervisors over you in this business. It is found that within each of us, along with the instinct of self-preservation there is an instinct of self-destruction. Therefore, in most cases the cause of his failures is in the trader himself, but not in a "weird" market. Only self-discipline can determine your future success as a trader and turn you from amateur to professional. It will take a lot of time and effort to overcome and submit yourself, but it's worth it.
If we try to answer the question briefly, then the trader profession consists of three important skills:
- Observe and analyse the market;
- Trade in a disciplined manner - using your own system and rules;
- Make effective deals, open and close them with profit.
Observation skills and understanding of the processes taking place in the markets do not come immediately, but eventually. To do this, you need to constantly "keep your finger on the pulse" of important economic news and events, which can cause serious resonance and price changes for the whole group of financial instruments. Always and everywhere, using your methods and models of active trading or investing, you need to consider the overall situation and the mood in the markets as well as specific seasons of reporting, publication of economic indicators and market expectations on them. At first glance it may sound complicated, but in fact, it is a matter of skill, persistence and a constant presence in the professional environment. The ability to analyse should include not only your skills with graphs and indicators, but also an understanding that there is no such trading system that will withstand sharp and strong movements in the market caused by the panic reaction of participants to the publications.
Gradually, rooky traders start to form their own rules of trade. They are not formed immediately and permanently, but with the continuous development and improvement. But it is the personal system, combined with self-discipline (willingness to strictly follow own rules in trade), and in conjunction with money management (financial discipline) that can give you the necessary trade advantage over other market participants. In addition to this combination, it is important for a trader to understand and accept his psychology and temperament. These will determine what instruments and time periods of work (time-frames) you will be most comfortable with, and thus your trade will be effective. If you tend to take quick decisions, you are stress proof, going to be satisfied with small but more frequent profit and, it is very important, that you have time for intensive trade – then intraday trade on the active tools will be the best solution. Alternatively, if you do not have time for intensive trade and tend to a quieter model analysis and trade, the medium range will be comfortable and correct for you.
And in the third place, it is important to understand and master techniques of trade and necessary skills. And the most effective way to do it is in connection to specific financial instruments. A feature of all trading tools popular among traders is the fact that each of them has its regular players, own laws and features of movement and behaviour.
In summary, we can say that any rooky trader needs HIS PERSONAL system. Built on his personal trading rules that take into account psychology, own skills and experience taken from successful traders and systems. And of course, your personal system should take into account the size of your trading account.
Also, the rooky trader should adequately perceive and evaluate numerous publications and recipes of "magic" systems, published in near-stock industry by many authors, such as books, computer programs, analytical tools, or services. Most of such materials are written by venerable authors who are not successful traders and earn money by selling their thoughts on the market. Quite often, these experts - theorists teach that market should be forecasted. We are careful about any forecasts and our experience shows that all the trader has is the current information on the market and its history, and these data should be relied on in work. Certainly, there is a number of economic indicators and news that can influence the market, but a rooky would better not play with them and stay out of the market altogether.
From birth, a person falls under the influence of many stereotypes. Our environment is working hard on us, from birth to school in different places, then at work and outside of it. They often try to sell a lot of incorrect ideas about life to us. Therefore, most people eventually form a multi-dimensional "matrix" of stereotypes, patterns, and various prohibitions. Studying in the universities, we diligently acquire knowledge that we think we need and that will ensure our bright future. And we hope that we will be able to sell at high price our abilities, time, and actually a huge part of life to the employer, while often receiving a pittance. Perhaps from the point of view of society it is right and moral. To live "like everybody else". But life presents its own adjustments and experience shows us that we are very vulnerable and dependent on the mass of the circumstances and on the certain individuals and their attitude to us. It is often very hard to find a job, both in compliance with your background and bringing regular and sufficient income. But having found such a job, you can easily lose it in the circumstances which are out of your control. The whole life of most people often looks like endless running around in circles. And many people who found themselves in such situations and think about such problems may find at least a few decisions to significantly change their lives for the better. One solution is professional job in the financial markets. And the most important advantage in this activity and the prize for the rejection of the patterns and stereotypes is a previously unattainable level of freedom and earnings with the ability to spend your time and energy at your own discretion.
Rapid development of financial markets, coupled with development of means of communication has led to the availability of stock transactions for a wide range of people with available funds. The level of development of the Internet allows you to trade in person, not entrusting your money to someone and allows you to trade the widest range of instruments around the world. Technologically, it is enough to open a trading account with a broker, set the terminal program on your computer - and you're ready to trade, making your own trading decisions, and executing them. Of course, a number of mandatory questions arise. What to buy and to sell, what strategies to use for success and what data to use? How to analyse information and how to turn analysis into profits in your account? Those who have decided to trade on their own have dozens of questions, and almost all of them will have to be answered by the rooky traders on their own. No advice from books can be applied successfully in the market without having to run it through yourself, through the analysis of your strengths and weaknesses.