Learn To Trade

Learn to Trade

Stock trading has many layers of complexity and begs the question; are great traders born or taught?  Unfortunately, for 95% of us, learning to trade successfully is a long, arduous process in which our experiences (good and bad) shape the way we look at the market.  Trading is very emotional and many investors will find that their discipline does not apply when it comes to the market and trading.

Learn about yourself before you learn to trade.  One of the first things a trader must decide early on in their career is what type of trader they want to become.  Some traders will focus on long term investing, while others will learn day trading techniques.  It all depends on your appetite for risk and your investment goals.  Do you want to learn to trade stocks in order to take control of your retirement accounts or do you want to make a living out of the markets?

Covering the Basics

If you’re just getting started with investing; learn to trade stocks first before diving into any other security types.  Stocks are one of the oldest investment vehicles and the easiest to comprehend.  That’s because the order instructions for stocks are fairly simple.  A trader can buy stocks long or sell stocks short.  There are no complicated options or futures calculations involved. 

It is best for an investor to learn trading techniques by practicing in a simulated environment where there is no real money at stake.  This will allow you to get a feel for the market, and how it moves, before jumping into the shark tank.  However; don’t get too comfortable trading funny money.  To take your trading to the next level, you will need to learn to trade in a real market with real money.  While you may ask what the difference is, there is something to be said about trading with your hard earned cash and managing your emotions when you do so. 

Don’t treat the stock market as a get rich quick scheme and learn to trade from the ground up, without taking any shortcuts (trading systems, investment advisors, etc).  Much like a doctor that will spend over 8 years after college to begin practicing, traders should approach their profession which such zeal.  Now, we are not saying that trader’s should wait 12 years before they put on their first trade, but be prepared to pay your dues with your time and your money while you learn to trade.  There is no get rich quick system that can be learned in 30 minutes.  For every trader that makes money in this matter there are hundreds that take a loss.

Active Trading

Active trading is much more challenging because it requires constant decision making.  There are many sites claiming that a trader can learn day trading in a couple weeks, but the reality is that it will take significant amount of time like any other profession.  It will take time to understand the intraday market dynamics and how to use different day trading strategies to put on trades with the highest probability of winning. 

A day trader can elect to trade the morning volatility, midday quiet period, or late day breakouts.  Therefore, it is essential that you learn to trade with many different trading strategies, as not all strategies will work in every trading timeframe. 

The first hour of the day requires the most skill as many securities open with large gaps, up or down.  These gaps occur from a build up of buy or sell orders accumulating before the open of the market.  This early morning volatility makes it very difficult for a novice, and even professional, to trade and requires quite a bit of practice in order to sort through the madness.  The most amount of money is made and lost in the first hour of trading.  For this reason, many professional traders avoid the early morning madness and focus on trading after the first 30 minutes has passed.  It is in this timeframe when true trends transition from ones which were manipulated by the market maker to ones which have true institutional interest. 

Visit the mysmp.com day trading education center to get a full list of free trading strategies that you can use to learn trading techniques which are used by professional traders.

Learn Options Trading

A great way for you to hedge your portfolio against risk is to learn options trading.  Options are used by many traders to protect themselves against adverse movement in their positions, and even used by many professional traders to speculate on the direction of price.  Options provide a large amount of leverage which allows traders to command a large amount of stock with a small amount of capital. 

Many traders will create options trading strategies to take advantage of various market conditions; bullish, bearish, or neutral.  For example, options straddles are entered by traders when they know a large move is coming, but are not sure about the direction.  Conversely, traders use butterfly spreads when they believe that the price of a stock will remain relatively unchanged; this strategy profits off of time decay.  Finally, covered calls are created by traders to lower their net cost of a stock purchase in exchange for limited upside potential.  I think you get the point; there are dozens of strategies that you can use

At mysmp.com, we have an options trading education center where you can learn to trade many of the different options strategies, including the ones we just discussed here.
Tim Ord
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