5 HOT TIPS TO START STOCK TRADING

Financial stock market has remained one of the avenue where people all over the world make and multiply their wealth.
It has enough room to absorb as many with different objectives whether day-trading
for profits or for long-term investment into the stock market.

I was motivated to write this article due to received questions from people on how to start or get into the online
stock market as they claim the whole picture is still blurring to them. This brought about the aim to this article which
is to reveal the hot tips one need to be aware of and stick to for an easier
start in the business of online stock trading.

1. What do you know about stock trading? This is the first question you need to ask
yourself. You should look before you leap. Do not put your money into a
business you do not understand but put your time and energy first at learning
how it works. Take advantage of good stock trading books written to guide the beginners
and learn the stock market road before running into it.

2. A business plan: stock trading is a good business and like other businesses, it
must be started with a good business plan. Your plan must cover what you set to
achieve and how you want to achieve it. It will define whether you are a
short-term, medium-term or long-term trader. Your plan will also include how
you intend to manage your risk. In achieving your trading goal, you must have
trading strategies that will guide you on entering and exiting your trades. You
can read more on designing your trading plan through this book, “Secret
Practical Guide for Stock Beginners”, it has more in-debt analysis and
illustrations on setting up your trading plan.

3 . Practice before you invest your real money. Stock market is a risky market but you can
reduce the risk of loosing your hard earned money by first gaining the trading
experience through opening one or more of the stock simulator account. A stock market simulator is a program or
application that attempts to reproduce or duplicate some or all features of a
live stock market on a computer so that
a player may practice trading stocks without financial risk. Play the game with virtual money by owning a
virtual portfolio, test your strategies and gain more confident before
approaching the market.

4. At this stage, you are confident enough to open your real account seeing that you
have grown your virtual portfolio with your trading strategies. There are numerous
stock brokers online and you need to choose the type of broker that matches
your interest.

5. Keep a trading diary close to your table. This is very important even when you are
practicing with a virtual portfolio as it will help you to review your trades
from time to time for more improvement in your trading skill. It will also help
you to detect trade errors if they are made by your brokers.

HOW TO USE MONEY MANAGEMENT PRINCIPLE IN FOREX TRADING

You don't need to ignore this principle if you really want to make good money from the Forex market in the long run. Gamblers don't last long in this market. Professional traders use money management principle by adding a good risk management system to all their trades. This is a way of protecting your capital from bad trades.

The knowledge of how to manage your risk is very important and should not be ignored as this determines your long term success in the market. The concept of loss is inevitable in the Forex market. For you to survive, you need to mange your loss so as not to cut deep into your capital. There is no trading system with 100% accuracy so, losses will always come but your ability to minimize them determines your survival.
With the risk management, you are looking at a long term returns on investment and not a jackpot. Risk management is a system use by investors to control their trading losses. As you are thinking of making profit, also make a provision of how much loss you can afford to bear in case the trade turns against you.

UNDERSTANDING THE USE OF STOP LOSS

This is a tool use to set up when a trader can afford to leave the market with a loss in case if the trade moves against him. It is very important to use this tool effectively because the level of risk a trade carries is determined by the value of the stop loss. This means that a higher stop loss value means a higher risk level while a lower stop loss value means a lower risk level. There are some trading strategies that reqiure the use of fixed exit stop loss and some that require a variable exit stop loss. It is very important for a trader to use stop loss before opening any position because the concept "loss" is inevitable in this market but your ability to manage it properly determines your success.

YOUR RISK LEVEL

You have come to understand that the value of your stop loss determines your risk level. Then, next question is how will you choose your risk level? Different traders have different opinions to the choice of their risk level per trade. From my experience, i think percentage risk level should be drawn from 2% to 3% of your trading capital per trade.

Assuming you are trading with a capital of $2000 and using 3% risk level per trade. With 30 pips stop loss per trade, your risk level will be 3/100 * $2000 = $60.
The amount you gain/loose per pip = $2 ( i.e $60/30 pips)

PROFIT TO LOSS RATIO

This is the ratio of your profit to your loss. Using 3:1 profit to loss ratio means that you are placing your trades only when you have a chance to make three times of what you set to loose. Assuming a stop loss of 20 pips, a trader using 3:1 profit to loss ratio will only place his trade when he sees the chance of making 60 pips profit. This trading rule will increase your chances profitably.