Contrary to what you may have heard about trading being a simple get-rich-quick activity, the truth is that there is no easy way to achieve quick success in trading the markets. Beware of anyone who attempts to suggest otherwise. Like most other human endeavors, there is no better recipe for success than experience, the will to learn and hard work. Success in trading is most often achieved by exploring market probabilities based upon market knowledge, historical price analysis, and human behaviour.
Even an experienced trader cannot be right all the time, but he is never too proud to admit being wrong and is always prepared to take steps to preserve his trading capital. It is human nature to dislike being wrong but do not forget that the market is always right and respect this fact. Almost every trader's prior target is to make money. Do you have what it takes to achieve that target? You will require the following assets:
When you open a broker account you will have to meet minimum capital requirements as laid down by the financial industry. An investment in stocks requires about one third of the countervalue of these stocks at the time of trading in the form of cash in your account. An investment in futures contracts generally requires between 3 and 8 percent of the face value as colatteral. When opening a trading account, only use funds which if lost, will not adversely affect your lifestyle.
Leverage: This term refers to the amount of cash in your account in relation to the outstanding value of your open positions in the market. For instance, if you have $50'000.- in your account and purchase stocks to the value of $50'000.- , you have no leveraged position. During adverse market situations, your stocks may lose value, but they remain in your posession until you decide to sell them.
If you have $ 50'000.- in your account and purchase stocks of a market value of $150'000.- , your leverage factor is 1:3. This means that your broker is lending you $ 100'000.- to finance this transaction.
Be aware of the fact that the higher the leverage factor you apply, the greater are the potential rewards but also the risks. A 33 % rise in the value of your stock holding would result in a gain of $ 49'500.-, whilst a 33% loss in the value of your stock would totally deplete your trading account and force your broker to liquidate the position, unless you select to replenish your account in order to cover the market loss.
Be extremely careful in using leverage. If you do use it, then make sure that your open positions are protected with protective stops in case the market goes against you. In fact using protective stops is a wise option even if you do not use leverage.
In order to be able to make a trading decision you will require the following resources which are listed below:
Your trading plan will be derived from the output of your analytical software. Such software can generate buy, sell, stop-loss and target exit signals in real-time, depending on the system strategy implemented. It is of immense importance to use a trading system which has been successfully back-tested and also suits your trading mentality and style.
It goes without saying, if you are committed to sticking to your trading plan then it had better be a good one! A good trading plan may have less than 50% which are winning trades and still be very profitable.
"Most traders plan trades that were never made and make trades that were never planned!"
If you fall into this category, then your life as a trader is surely going to be a short one. Try to keep emotion out of trading. Don't let emotions rule your trading decisions. If you want to be a successful trader, you have to have a passion for trading and the will to learn about the markets. You will need to study price action and the benefits and/or drawbacks of a multitude of technical indicators. You will need to stick to your trading plan when things may not be going so well as you had envisaged. Passion drives people in many successful endeavors, and trading is no exception.