Your Guide to Picking Winners in the Financial Markets

As a novice on the trading scene, you may be inclined to hit the ground running with day trading. It is ill-advised to commence your training with real money day trading activity; it is simply too risky. There is no guarantee when it comes to forecasting price movements in the financial markets. However, equities, commodities, indices, currencies, and digital currencies allow for in-depth analysis via charts, graphs, trends, economic indicators, and pricing mechanisms. It is against this backdrop that we employ a powerful combination of forecasting techniques, automated trading, hedge and loss mitigation systems, tactical and strategic decision-making, and sound trading advice. Let's get started!

1. Pick Your Preferred Trading Market according to your Budget

Every market is different. Stocks, forex, indices, and commodities each have a specific type of audience that they are catering to. If you are looking for low minimum investments to start with, the Forex market is best suited to your needs. When picking your preferred trading market, factor your personal preferences into the equation. These include your budget, your risk preference, your time zone, and your frequency of trading.

For example, if you are an active trader then it's important to minimize your trading fees, commissions, and charges as much as possible. Imagine the sticker shock if you were charged for every transaction on your account? A trader who makes a couple of trades per month is going to be affected less by low monthly fees and charges than a high-frequency trader.

2. Picking the Right Broker is Essential

It's risky enough trading stocks, why add to your worries by picking a disreputable brokerage? Start trading with a micro account at a credible forex broker where you can dabble in major pairs, minor pairs, and exotic currency pairs. With forex trading for example, you are automatically immersed in the world's most actively traded market with higher levels of volatility. This presents opportunities for profiting off price movements particularly when margin and leverage come into play.

A word of caution is in order when picking a broker; never overcommit to any individual trade – limit your risk on each individual trade so that when markets move against you they won't cripple your trading account. As a rule, experts advise trading no more than 1% of your available funds on any given trade. With a $1000 bankroll, that means no more than $10 should be leveraged (1:3000 is possible) on any given trade. Think of leverage as the trading power of every single $1. When it moves in your favor it's fantastic. A caveat is that it can move against you too.

3. Knowledge is Power – Study up Before You Put up

Imagine walking into a transaction completely blind. That's pretty much what a gamble is all about. Fortunately, traders don't need to go down this path. You don't have to do feed hard-earned money into a machine, pull the lever and wait for lady luck to pay out your winnings. With trading, you can educate yourself to the point of being confident about your buying and selling decisions. It's not a perfect science – don't let anybody convince you otherwise. However, careful analysis of the long-term and short-term trends, in conjunction with charts and graphs, technical and fundamental factors, and economic data releases can increase your probability of success to a degree. Remember, even the most studied trades can go awry; it is an unpredictable market at the best of times.

4. Understand your Trading Options

Trading is about buying and selling. If you're holding a financial instrument, you're probably just investing. As a trader, you have several options available, including long calls (holding for price appreciation), covered calls, long puts, short puts, married puts, and so forth. Each of these trading options offers some degree of profit potential based on a combination of features. It is imperative that you study up on the different trading options available to you. It's not simply about buying or selling at a point in time; more often than not mitigation (hedging and stop loss et al) comes into play when complimentary trades are entered into with the purposes of protecting against losses.

5. Employ Risk Management Strategies

Risk is an inevitable component of trading. Without risk, there is no reward. Anyone who wants 100% guarantees that their money will not be lost should invest in a CFD, or a fixed-interest-bearing bank account, rather than trading. Fortunately, risk management is one area of trading activity that has been studied extensively. Several important risk management strategies have been identified and promoted by top brokerages over the years. Foremost among them are two components, notably optimal position size (how many shares in each trade) based on your 1% bankroll exposure risk mitigation system, and stop loss. As its namesake suggests, stop loss stops the loss when the price declines to a certain point. In the event of a price reversal, you certainly don't want to lose the proverbial shirt off your back – that's why a stop loss is so important to implement.

Bonus: Why You Should Not Start Day Trading as Your First Order of Business

What is day trading? As its namesake suggests, a day trader is somebody who trades financial instruments (stocks, commodities, indices, currencies) during the day. A day trader does not invest in a financial instrument; a day trader buys or sells with the intent to profit from price movements. A more precise definition of day trading is the following, '… Speculation in securities… all positions are closed before the market closes for the trading day…' It's a pretty tall order to be able to accurately forecast price movements of highly volatile financial instruments, and profitably close up positions within the same day.

Clearly, day trading is best left to highly skilled traders who have already mastered the art of their preferred trading platform, with their broker. As a day trader, it is imperative to stay abreast of the latest developments with the financial instruments you are trading, since multiple elements come into play simultaneously. You may not believe it at first, but geopolitical events such as natural disasters, pandemics, elections, trade deals, global demand, scandal, competitors, monetary policy, and a host of other factors can all influence what happens in day trading. Speculation is a risk-on activity, given that you're forecasting future price movements with minimal certainty.

When day trading, it's important to learn as much as possible about the underlying financial instrument. Knowledge is power. Automated programs need to be used, given the huge number of equities, including penny stocks, and established company stocks on the market. It's impossible to keep track of a portfolio of dozens of stocks if you're doing it manually. When you're ready for the highly advanced world of day trading, it is wise practice to use trading bots, set stop losses, and manage your trading budget with caution. Your appetite for risk should be factored into the equation, to determine the types of trades you make.