Learn how to – 5 mistakes to avoid when trading for the first time

Learn how to – 5 mistakes to avoid when trading for the first time.

As a beginner, finding out which tips will help you on your journey through the tough trading world is advisable. It would be poor form to start trading of your own volition with no prior due diligence. We will explain exactly what we mean in this article and see if we can guide you as you get started in such a difficult space.

Learn the basic terms

So, if you’re looking to start trading any asset, it is important to learn trading terms as well as more generic economic terms, such as what is GDP. Anything that will give you a more thorough insight into how trading and economies operate will benefit you. The two are interlinked and work in tandem with each other. However, and although they are mutually exclusive, there is no disputing that the strength of a country’s economy will usually have a direct or indirect connection with how well its stock market is performing.

Perform due diligence

If you do not fully explore the market you are investing in before you risk your hard-earned money, you are essentially gambling. This may sound like a harsh statement, but it is the truth. If you are buying and selling cryptocurrency, stocks or forex without understanding the market, you are playing an incredibly risky game and you will likely learn the hard way. Due diligence can start with something simple, like reading a book on the topic.

Even if you spend months or years studying the market, how it works and what effective chart analysis looks like, you could still lose your money. This is because your capital is at risk whenever you execute a trade. You could study charts for months, find what you think is an effective entry point, and still come out of the trade with a loss. Trawling through historical data and finding patterns can work in your favor. Many professional traders implement this method alongside a variety of other methods. However, it will not benefit you every time you trade.

Invest money you can afford to lose

The cryptocurrency boom of 2021 highlighted just how critical it is to invest with portions of your wealth that you can afford to lose. Some beginner traders suffered immensely when the cryptocurrency market crashed after significant highs last year – you only need to take to social media to look at some traders who lost all their money.

This is one variable in a string of techniques you should use to ensure that any losses you incur are manageable. When you use only the money you can afford to lose, you are more likely to remove any emotion from trading, which is the next point we will discuss.

Do not trade on emotion

One of the biggest obstacles beginner traders will face is having the ability to stop emotion from dictating their trading strategy. You can do several things to stop yourself from trading on emotion. One such technique that is known to be effective is the implementation of stop-loss and take-profit orders.

A stop-loss is a safety net that ensures your asset is sold in the event of a severe market downturn. Most exchanges will offer a facility where you can set an automatic price to sell the asset, if you are not at your trading desk. Additionally, if you are a trader who trades across the spectrum, you can use automated software that will perform the same task across various platforms.

Conversely, a take-profit target is a benchmark you set yourself to sell your profit in the event of a positive market uptrend. This is a good situation, but if you are a beginner trader, you can become hypnotized by the profit. Some get drawn into the false belief that the green candle will never stop rising. Unfortunately, many beginners have learned the hard way that if you try and time the perfect trade, you may end up selling below the price you were initially happy with.

Use demo software

Using demo software to learn how a live market behaves will ensure you are not going into your first trade without knowing what to look for. In addition, you can trade using demo software without losing any of your own money. For most beginners, losing money in their first trade – which 80% do – is a painful but necessary learning curve.

However, it doesn’t need to be this way, and if you take our five tips on board today, you will be better equipped to tackle the market than a beginner trader going straight into a live market without any preparation.