Take the Time to Learn to Trade Using Before You Risk Your Money

Learning to trade is like learning to play chess. It requires some time and effort to learn the basic fundamentals. There are strategies that you need to employ to make sure you have a game plan, as opposed to chess when you trade you are trading against the entire market, although you do need a buyer for every seller. You also need to understand the risks you are taking. If you want to hit a home run, you need to risk a lot of your capital.

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The First Step

The first step in the process when you learn to trade is understanding the products that you can trade within the capital markets. The markets are segmented into currencies, commodities, equities, debt and alternative investments like crypto currencies.  There are brokers that provide access to some of these markets and others that allow you to trade all of them. Each of these products are used to accomplish specific needs for those who are using the capital markets to raise capital. For example, treasurers swap currencies if they have gains or losses in another currency.  Corporations use both debt and equity to raise money. An oil company might hedge their production by selling oil.

Educate Yourself

After you have an overview of the markets that are available, spend some time educating yourself. There are thousands of articles and videos on each market.  Try to get an idea of why a market moves and different strategies that are used to predict the future direction of a market.

Most of the strategies you will come across focus on technical or fundamental analysis.  Your goal should be to determine which techniques best fit your trading personality. Some of the technical strategies including momentum, or trend following. Others are mean reversion style indictors. You can learn about these using videos or read about them in articles.  You should practice using these indicators in real-time using either a demonstration account or by paper trading.

Fundamental analysis is the evaluation of new information.  This could be economic data, monetary policy releases, earnings reports or political issues.  When new data becomes available the market could move to a new price which reflects the new data.  If the market does not move, the information is already incorporated into the market.

Learn About Risk

The key to successful trading is to have a risk management strategy that will help you meet your financial goals. Your risk needs to be commensurate with the reward that you are attempting to receive. You need to be realistic. If you are expecting returns of 100-1 you are gambling and the odds will be stacked against you. The goal is to try to make more than you will lose without risking ruin.

Before you begin to risk any capital, you should go through several steps to learn about the markets, strategies and risk management. You should consider trading using a demo account or paper trading which will help you gain confidence in the strategies you develop.