Trading stock is a lifelong reaction to world events. Global economic and political changes result in a constantly evolving marketplace that you, the trader, have to reduce to a mathematical probability. The drama of trading is quickly overwhelmed by the constant study and practice necessary to be an outstanding trader. A career trading stocks can be lucrative, but it will have a very steep learning curve that you must master in order to be successful.
Instructions
The Beginning Steps of Stock Trading
1. Trade stocks and bonds with a passion. It is a career with varied possibilities with possible large rewards. There are career institutional traders and specialists, and career private money traders such as hedge funds and proprietary traders. There are private individuals who trade for their own accounts. The best traders are those who have a passion for what they do. They read voraciously and exchange ideas with other traders throughout their careers. They accept risk as an important component of stock price calculation.
2. Learn to trade with attention to detail, but know that it has a steep learning curve. The best traders have three common traits: They have strong math skills, especially in statistics. They have completed advanced degree programs in math, business or science. They know and acknowledge their own strengths and weaknesses. Most trading careers begin with on-the-job training by experienced professionals who hire bright college and graduate students.
You will become a good trader with experience. If you're a beginner, you should start trading--on paper--immediately. Learn what works and does not work, and keep accurate records of your reactions to the random events that affect markets. Watch your ideas and reasoning improve with this diary technique. Read investment blogs and financial journals so you can explain to others why your financial decisions were correct in light of current economic and global events.
3. Develop your own trading models. Decide if you want to trade as a fundamental analyst, who reads balance sheets and industry trends, or a technical trader, who calls upon formulas and graphs that interpret price and volume action into a trading plan. There are several good trading platforms that are worth buying to experiment with raw stock data.
4. Understand risk control. Good trading requires it. Traders develop diversified portfolios to spread risk. You trade bonds and commodities to further diversify the inherent risks you undertake. All good traders understand the risk of total loss. With this type of risk, you cannot comprehend it until it is on you--you will only understand it after the fact. Your total return or measure of profitability is always measured against the statistical measure of risk.
5. Study bull and bear markets. Since the end of World War II, the business cycle has averaged about 6 years. There is nothing you can do to accelerate the learning process. Bull markets are much easier to trade. Simply look at the difference in the Dow Jones Industrial Average during recessions. Those scalloped rallies that suddenly end call for a different strategy from the smooth upward trend of a bull market.
