Trading Basics for Beginners: Learn How to Trade without Getting Fleeced

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Trading continues to become more accessible and appealing as a way to use your hard-earned money. Famous institutional investors, celebrities, politicians, and entrepreneurs have all shown what’s possible when you successfully play the market. 

But most people still don’t really know how the system works or how to get started. And there will always be major dangers for those who rush in, trade without a thesis, or become addicted. 

This article provides an introduction to trading, and the differences between professional and self-employed traders. It then explores the costs and risks involved, the core financial products and assets to trade, how to build a strategy and a system, and how best to measure your performance. 

WARNING

Trading exposes you to the risk of losing more than your initial investment and incurring financial liability. Trading is suitable only for well-informed, sophisticated clients able to understand how the products being traded work and having the financial ability to bear the aforementioned risk.

Transactions involving foreign exchange instruments (FOREX) and contracts for difference (CFD) are highly speculative and extremely complex. As such, they are subject to a high level of risk due to leverage. Please keep in mind that CDF trading is banned in the US.

Information published on the NewTrading.io website is for educational purposes only and should not be construed as offering investment advice or as an enticement to trade financial instruments.

What is trading?

Trading is the buying and selling of financial products. Each transaction of a financial product is a trade, and the person who performs these transactions is a “trader.”

The most common financial products include stocks, bonds, options, currencies, exchange traded funds, and more recently, crypto assets. 

The common stereotype of the professional trader is a speculator who bets on stock market price movements in order to make money. But not all professional traders are speculators. And not all traders are professionals. 

Broadly speaking, there are two types of traders: professional (“institutional”) and non-professional (“retail”). 

Institutional trading

Institutional traders are full-time professionals, usually dealing with large sums of money and/or a large volume of trades. 

There are two common types of professional trading:

  • Proprietary trading
    The proprietary trader carries out speculative trades on their own behalf. They bet on price movements in the markets, hoping to “beat the market” and realize a capital gain.
  • Flow trading
    The flow trader acts as an intermediary between the market and their clients. They offer them the best possible price while charging a small commission on client-authorized trades.

Because flow trading requires clients, it really only applies to professional traders. While it is a career for some traders, proprietary trading also attracts private individuals operating in their spare time. So some proprietary traders are not “institutional.” 

Institutional traders are famously well-paid because they have rare technical skills and deal with such large amounts of institutional money. Their compensation packages can be huge, including large bonuses in successful trading periods. 

These amounts make trading much more appealing to non-professional traders, eager to see the same rewards. But the average freelancer doesn’t have the volume of funds or the institutional experience necessary to make their skills as profitable.

Retail trading

Seeing the success of famous institutional investors, many private individuals want to follow in their paths. But trading is often risky, and simply putting your money in the market doesn’t guarantee success. 

According to regulatory authorities and industry experts, the vast majority of private speculators lose money, (nearly 9 out of 10).

This does not necessarily mean you will not profit from trading. Your talent (or luck) may indeed grant you entry to the exclusive circle of profitable traders. But the odds are against you making huge returns. 

Don’t jump headlong into trading to get rich or supplement your income. Do it first and foremost for fun. And if you also manage to earn money through trading, all the better!

Money isn’t the only reason that might encourage you to trade. A non-professional might trade to:

  • Develop their financial knowledge
    Understanding how financial markets work through practical experience — especially if you’re considering a career in finance — helps to bridge the gap between academic theory and the reality of the profession.
  • Work on non-financial skills
    In addition to financial know-how, trading lets you strengthen your strategic analysis, discipline, emotional control, critical thinking, and so on.
  • Simply have fun
    If trading is not your profession and your financial health is not at stake (it never should be), trading can be an enjoyable hobby. There’s nothing wrong with treating trading like playing poker or betting on sports with friends!

While several motivating factors may drive your desire to trade, there is a singular goal, common to all amateur traders: it’s not about making huge amounts of money — it’s about beating the market.

Your goal: Beat the market

Although often used indiscriminately, the time-honored expression “beating the market” has a precise meaning in the financial markets. To beat the market means achieving a higher return per unit of risk than the market.

This isn’t quite the same as seeing a particular stock price rise, or seeing a nice return. You want to make that nice return without taking unnecessary risks. 

Making money isn’t enough because the market may have made more than you over the same period. There will always be others trading a higher volume, faster. And outperforming the market isn’t the goal either because you may well have done so by taking more risk than the market.

And naturally, every trader wants to prove that their winnings come from real talent and skill. So you also need to rule out luck. 

One out of a billion dice players will probably be lucky enough to have an incredible run of 6s. Likewise, out of a billion incompetent speculators, one will probably be lucky enough to be right every time. But that doesn’t make them any more talented than the next trader!

Beware of survivorship bias, where a superstar speculator whose returns seem extraordinary could very well just be lucky.

Distinguishing between luck and talent is undoubtedly one of the trickiest exercises in the financial markets. But applying certain critical filters to a statistical analysis of the returns will help determine whether or not this was a pure miracle.

But is beating the market enough to make you rich?

Trading costs

Trading doesn’t come free. As we’ll see, gross return does not equal net return. And net return does not equal real return because you have to adjust for inflation. Certain expenses have to be factored in before you actually see increased wealth. The most common include:

Your trading account’s “purchasing power” must increase to make money as a trader. In other words, using the money from your trading account, you need to be able to buy more goods and services today than you could yesterday.

Lastly, you need to consider opportunity costs. That is, if you had invested the resources you allocated to trading elsewhere, how much would you have earned?

The market is stacked against you. Which makes beating the market all the more tantalizing and exciting when you make it happen. 

Noteworthy

It’s highly advisable to begin with a free paper trading simulator. This allows you to gain confidence and develop your trading skills without financial risk. Once you feel prepared, you should only invest funds that you can afford to lose.

How to choose a trading strategy

There is no such thing as a permanent, ready-made winning trading strategy. However, there are some conditions for defining a complete approach to trading.

Every trading strategy, in fact, has three dimensions: style, control mode, and method of analysis. Here are some examples of each. 

StyleFeatures
ScalpingThe scalping trader makes very rapid trades and stays in a position for only a few seconds to a few minutes.
Day tradingThe day trader makes quick transactions — within the same day or faster — and holds positions for a few minutes to a few hours.
Swing tradingThe swing trader makes less regular trades, and stays in a position for a few hours to a few weeks.
Position tradingThe position trader makes longer-term trades, and holds positions for a few weeks to a few months.
Control modeFeatures
Manual tradingYou execute trades without algorithms. 
Automated tradingTrades are 100% algorithmic, without manual human intervention. 
Semi-automated tradingTrades are part-manual, part-automated.
Method of analysisFeatures
Fundamental analysisStudy of financial assets.
Technical analysisStudy of price history.
Behavioral analysisStudy of market participants’ behavior.

All you have to do is pick from each of these three tables to create the trading strategy best suited to your profile.

Create your trading system

Once you have your trading strategy, you need to set clearly defined rules as you create your own trading system.

The objective of a trading system is to establish protocols and criteria so decision-making can be as systematic as possible. These systems are designed to limit the impact of emotions and impulsivity. This preliminary work lets you be more proactive than reactive during trading sessions.

The components of a minimalist trading system:

  • Financial products traded
    What financial products will you trade?
  • Time slots
    During what hours will you trade?
  • Entry criteria (indications, position size, risk)
    What are your criteria for entering a position?
  • Exit conditions (signals)
    What are your criteria for closing out a position?

Beware of the “perfect” trading strategy

There is no such thing as a “miracle trading strategy” or a surefire way to ensure you make money (or avoid losing it). Such a strategy would be self-defeating and, therefore, ineffective.

Imagine that the financial markets are a jungle with treasures (market anomalies) scattered about. Now picture an armada of greedy adventurers (traders) crisscrossing the forest every day.

When a sufficiently talented (or lucky) adventurer stumbles upon a treasure, they never give their competitors the location. They keep it to themselves.

The same is true of the financial markets. Just as our adventurers will consistently refuse to share the location of the treasure they have discovered, traders will not share the market anomalies they find.

In other words, any secret strategy is almost certainly too good to be true

Don’t fall into the trap. Some strategies may show a string of consistent gains over the last 100 or so trades. But asking the following questions may quickly reveal a strategy to avoid:

  • How much risk did they take to get those returns? Would you be willing to take those same risks a second time?
  • Is the strategy’s earnings expectancy genuinely positive? Or has the trader crossed their fingers and recklessly rolled the dice knowing that a loss, although unlikely, is possible, but they hope it doesn’t materialize? 
  • What would happen if a loss ensued?  

Run as far away as possible from black box strategies — schemes for which you can see and understand the results but not the inner workings.

In most cases, these are martingales or Ponzi schemes, where early investors are paid with money deposited by later investors. When the flow of new money is no longer sufficient to sustain the momentum, the system collapses, leaving its participants totally fleeced.

Rule of thumb: avoid any trade labeled as a “sure thing.”

The market reflects investors’ expectations, not the current state of the economy. Therefore, speculative betting on prices always involves anticipating expectations.

So, in the financial markets, it’s not a question of knowing whether the news will be good or bad but whether it will be better or worse than expected. You not only have to assess the market’s expectations correctly but also correctly estimate future news.

Even bad news can drive up prices if the news isn’t as bad as expected. Conversely, good news can drive prices down if it’s not as good as expected.

Because the few “certainties” are already included in market prices, all that’s left for the trader to do is place bets on the remaining margin of uncertainty. Unless you have inside information (i.e., illegal insider trading), there is no such thing as a sure bet.

Mastering the tradable financial products

Market trading involves understanding the different available financial products and how to use them. 

The five main asset classes

Stocks (or shares)

A share is a financial instrument or security (a title to property) representing a unit of equity ownership in a company. In a way, you buy a small piece of a company.

Holding a share entitles you to receive any dividends paid by the company, as well as the right to receive information and vote at the company’s general meetings.

Stocks are grouped into national stock market indices: the DJIA, the S&P 500, and the Nasdaq Composite in the US; the FTSE in the UK; the CAC 40 in France; the DAX 40 in Germany; the Nikkei 225 in Japan; and so on. Stocks are also grouped into sectoral indices, such as health, telecommunications, transportation, and so on.

Equity trading can be particularly risky due to the risk specific to each company. A company could very well be acquired overnight and see its stock price double, but it can also be forced into bankruptcy and see its price fall to zero.

Bonds

A bond is a financial instrument or security (a title to property) representing a fraction of a company’s debt. Holding a bond entitles you to receive interest payments in the form of “coupons,” as well as repayment of the debt at maturity.

Due to the amount of capital required and the relatively high brokerage fees, individual traders rarely practice bond trading.

Currency

The currency market (the FOREX) is all about exchange rates, where the value of one currency is expressed in relation to the value of another currency.

On average, the FOREX market is less volatile than the equity market. But it’s still risky, mainly because of the sharp price movements that can occur when governments change policies and central banks make decisions.

Additionally, the margins are very slim when you trade the FOREX market. But you can use leverage to magnify your gains as currencies fluctuate. 

By the same token, your losses may be magnified as well. Unfortunately, in the hands of inexperienced traders, this practice can have dire consequences, including serious losses and even debt.

Commodities

Whether you trade energy commodities (oil, natural gas), agricultural commodities (wheat, soy, corn), or mineral commodities (gold, silver, platinum), the commodities market has the advantage of being tangible and concrete. These physical goods are easy for retail investors to understand.

The actual market is nevertheless volatile and complicated to work with. Certain variables, such as storage or transportation costs for commodities, can impact the price of associated financial derivatives.

Case in point: the market for oil futures went negative for a while in 2020 — highly unusual for a globally sought-after commodity.

Cryptocurrencies and digital assets (NFT)

Highly fashionable, the market for cryptocurrencies and digital assets such as NFTs is undoubtedly one of the most speculative and volatile markets at the moment. There are many opportunities for mind-boggling gains, as well as the risk of total ruin.

Brokerage fees are still relatively high but can be offset by the high volatility of financial assets. Due to the highly speculative nature of cryptocurrency trading, it’s advisable to keep investments in lower amounts. Invest only a tiny fraction of your capital and beware of the risk of total loss.

Advice: No asset class is superior to the others when trying to beat the market. Some asset classes, such as cryptocurrencies, can be more “fun” to trade because of the hype surrounding them. The most important thing, as always, is to make sure you understand the market you are investing in, and to invest at levels you can afford.

Common financial products offered by traders

Each of the five major asset classes can be traded through different financial products. Here are some of the products frequently offered by institutions and brokerages. 

Securities

A security is a title to an asset. Stocks and bonds are part of this family because they allow their holders to own a share of the company or a share of a company’s debt.

Financial derivatives

A derivative is a financial product whose rate of return is directly linked to the rate of return of a second asset called the underlying asset.

This underlying asset from which the derivative “derives” its value can be a stock, a commodity, a currency, or a stock index.

So technically, the value of a derivative is the product of a mathematical relationship where the variable is the yield of the underlying asset.

For example, a financial derivative can track the rate of return of a stock market index (underlying asset) and multiply it by 2:

  •  If the stock market index gains +1%, the derivative will show a return of +2%. 
  • If the stock market index loses -1%, the derivative will show a return of -2%.

Structured products

A structured product is a collection of financial products grouped together in a single product. Unlike derivatives, structured products are not linked to just one asset.

The combination of different financial products within a larger structured product provides you with a tailor-made offering. This lets you bet on a specific market scenario at a lower cost, and with reduced risk exposure. 

Structured products generally consist of two components: 

  • The first ensures that the invested capital is protected
  • The second (riskier) maximizes product performance

Vanilla financial products

In the financial markets, traders distinguish between simple, “vanilla” products and more complex, exotic financial products. Here are two of the plain vanilla financial products most often traded by individuals.

ETFs

Exchange Traded Funds (ETFs), or index funds, are financial products that track the rise and fall in price of an underlying asset (stock, index, commodity, or other).

Futures

A futures contract is an agreement where a buyer and a seller agree to exchange an asset in the future at a price set out in the contract. The futures contract may, however, be traded prior to maturity. 

CFD trading is currently the most popular trading option for individuals, mainly because it offers more flexibility than futures and requires little capital, but it remains particularly risky.

Advice: Whatever financial product you trade, make sure you understand how it works and what risks are involved. Your trading activities should never jeopardize your financial health.

Open the right trading account

Classic trading accounts

Standard trading accounts used by most retail investors are relatively similar. The key difference is the fees paid (including brokerage fees for managed accounts). Most investors will want an account that is both simple (and enjoyable) to use, and has the lowest fees possible.

The classic trading account also doesn’t offer any particular tax advantages. But it does give you access to a very wide range of assets, with the flexibility to bet on both rising and falling prices. 

Special trading accounts

In contrast to the trading account, certain accounts (notably retirement accounts and cash value variable life insurance) are better suited to the longer-term investment horizon. A brokerage account, on the other hand, may be better suited to holding only financial securities, such as equities, to build up a portfolio.

Common examples include brokerage accounts, 401k and other retirement accounts, and cash value variable life insurance.

Taxes on trades

Taxes on trading will depend on the account you choose, and can have a considerable impact on your return. Capital gains are typically taxed at 0%, 15%, or 20%. This often depends on whether you’ve held stocks for longer or less than one year. 

You can also invest in the stock market through several types of accounts and, therefore, have different tax levels for different trades.

Note: Taxes can vary widely based on your state and country of residence, the products traded, the size of your returns, and your other income. Always consult a local tax professional and/or lawyer for tax and legal advice. 

Resources to manage fraud risks

Unfortunately, scams and false promises are rife in the world of trading. To avoid them, you can rely on support from a few governmental authorities. Here are the main ones.

  • The U.S. Securities and Exchange Commission (SEC) — through its Division of Trading and Markets — ensures that the markets operate in a fair, orderly, and efficient manner. The Division oversees the stock market exchanges and securities firms daily, including the Financial Industry Regulatory Authority (FINRA) (see below).
  • The Division of Trading also oversees the Securities Investor Protection Corporation (SIPC), which insures customers’ securities and cash held by brokerage firms in the event such a firm fails. The Division carries out the SEC’s broker-dealer financial integrity program, monitors suspicious activity (including money laundering), and proposes new rules and changes to existing rules filed by securities firms.
  • The Financial Industry Regulatory Authority (FINRA) works under the supervision of the SEC, writing and enforcing rules regarding the ethical activities of U.S.-registered broker-dealer firms and brokers. FINRA administers exams to ensure rule compliance and to qualify securities professionals. FINRA educates investors regarding fraud and unfair practices and brings disciplinary action for unethical behavior, levies fines, and orders restitution to aggrieved investors. In addition, FINRA is responsible for BrokerCheck, an online program that helps protect investors by providing information on brokers and broker-dealer firms.           
  • The Consumer Financial Protection Bureau (CFPB) supervises banks, lenders, and large non-bank entities, such as credit reporting agencies and debt collection agencies. The CFPB provides educational materials to consumers and fields complaints. The Bureau also helps consumers understand their rights and responsibilities in financial matters, focusing mainly on credit cards, mortgages, and other loan disclosures.

Beginner trading mistakes to avoid

1. Trading beyond your means

As an individual, trading should remain a hobby, and you should enjoy it. If you are unduly concerned about your transactions and your losses are beginning to jeopardize your financial health, it’s time to pull back!

Your trading gains and losses should only have a limited impact on your emotional state, so be sure to reduce your position sizes if necessary and practice with a paper trading account.

2. Failing to cut your losses

No trader can have a perfect score in the financial markets. Sooner or later (and usually sooner rather than later), you will be faced with your first loss.

So, be careful not to get carried away by the market. Although it may seem unlikely to you, the trend could continue for a long time, and your losses could worsen.

Therefore, to protect your capital, it is highly recommended that you use a stop-loss order to automatically cut your losses in the event of adverse movement in the market. 

As John Maynard Keynes liked to remind us, “the market can remain irrational longer than you can remain solvent. “

3. Staying in position with overnight leverage

A stop-loss order does not protect you when stock “gaps” occur. These price jumps — which can cause prices to shift sharply during a session or when the markets reopen (following a night or a weekend) — can lead to significant losses.

Even worse, they can land you in the red and put you into debt!

The seven risks of trading (and how to avoid them)

To enjoy trading over the long term, you must be aware of the risks you face as a trader.

Market risk

Market risk is perhaps the most prominent risk. This describes the possibility of losing part of the capital invested in a financial product, whether the capital loss is latent or realized (once the asset is sold at a price lower than the initial purchase price).

Remember that the price of a financial product can abruptly fall to zero, or experience an immediate and sudden drop of twenty or more percent! 

Currency risk

Currency risk arises when you invest in a financial product denominated in a foreign currency whose exchange rate fluctuates with the dollar.

For example, if you purchase shares of Toyota, which is listed in Japan and in Japanese yen, you will be exposed to the risk of exchange rate fluctuation (since the dollar-yen exchange rate changes constantly).

If you want to know in dollars what the return is for your investment in Toyota, you will have to calculate the difference in the exchange rate between the dollar and the yen.

These fluctuations can either increase your return — if the value of the yen has increased against the dollar between the date of purchase and sale of your shares — or reduce your return (if the value of the yen has decreased).

Counterparty risk

When you invest in stocks or bonds, you become the owner of the financial security in question. Accordingly, you own a small share of the company or a small share of the company’s debt. 

But when you invest in a derivative or structured product, you do not own a financial asset. You are committed to a contract. 

In organized markets, the counterparty to the contract is a clearing house — an institution that can meet the obligations of the contract under any circumstances. 

But in decentralized over-the-counter markets, the counterparty to the contract is another investor.

As a result, you run the risk that the counterparty will not meet all of its obligations and either won’t pay or will be late in paying you. This is called “counterparty risk.”

Scamming risk

Buying and selling financial products generates large amounts of money, which inevitably attracts all kinds of scammers. This includes salespeople with false promises, proven swindlers whose objective is clearly to extract money from you.

Always beware of offers that are too good to be true! 

Again, there is no such thing as a “miracle strategy” or a “guaranteed high-yield investment.” Any return above the risk-free rate carries risk. And if the proposed return is high, the risk level is also high.

Finally, always check the identity and reputation of the service or person you are about to trust. You can always contact their clients directly to get their views before you do business with them.

Execution risk

When you send stock market orders to a broker, those buy or sell requests may be poorly executed or even not executed at all. 

Technical difficulties arise when markets are highly volatile and illiquid. These are sharp price movements and lead to few investors transacting in the market.

For your stock market order to be executed on the market, there has to be an available counterparty. Therefore, if no counterparty is available at your selling price, your order will simply not be executed. And if a counterparty is available but at a price less than your stock market order, your order will only be partially executed.

When you use a market order or a stop order, you control when your order will be triggered, but you do not control the execution price. And you run the risk that your order will be executed at a lower price than you expected!

Legal risk

Buying or selling financial products based on non-public information likely to impact market prices is insider trading, punishable by heavy fines or even prison time.

Furthermore, any attempt to manipulate the market, whether through technical interference or by disseminating false information, is also illegal.

Professionals are aware of these risks, but individuals can quickly (and inadvertently) cross the legal line because they are unfamiliar with the law. Never engage in a practice that you feel is contentious — meaning against the regulations — or unfair to other investors.

Risk of addiction

The last of the seven risks presented in this module is somewhat “taboo” since it concerns the risk of addiction to trading

Trading can be addictive. As a speculative practice, trading involves gains and losses, generating bursts of dopamine and adrenaline in large doses.

Many speculators spend their days glued to their screens, watching their charts and playing the stock market as if they were at a casino. 

Each time, they bet more and more money in search of a thrill. Sooner or later, many end up with heavy financial losses, endangering their financial and social well-being. 

Make sure you stay in control at all times.

Monitor your trading performance like a professional

Performance must always be analyzed in the light of the risk taken to achieve it. This is the famous risk/reward ratio!

After all, doubling your money by flipping a coin is nothing special.

Two main indicators are generally used to measure a trading account’s performance: the Sharpe ratio and the profit factor.

The Sharpe ratio

The Sharpe ratio measures the return obtained per unit of risk taken. This lets us look at the returns of two different investments, each with a different level of risk. 

Using the Sharpe ratio, we can determine which investment yielded the highest return per unit of risk.

The profit factor

The Profit Factor is determined by dividing the sum of realized gains by the sum of recorded losses. The higher the profit factor, the greater the trader’s return.

Calculating your actual net return (formula)

There are several common metrics to measure returns: gross return; net return before taxes; net return after taxes. Understanding the meaning of the various returns is essential to knowing where you stand. 

At the end of the day, you don’t want to end up with losses when you thought you were making money.

Nominal and real rate of return

The nominal rate of return is, quite simply, the return achieved on your capital. 

Example: if you invested $100 and now have $102, you have achieved a nominal rate of return of +2%.

However, this rate of return only considers the change in the amount of money you have, not any change in your purchasing power. It also ignores inflation — the loss of value of money over time.

To accurately interpret your rate of return, adjust the nominal rate of return for inflation in order to obtain your so-called real rate of return.

Example: if your capital has increased from $100 to $102 and inflation was 1.5% over the period considered, your nominal rate of return is indeed 2%. 

But your real rate of return is 2% minus 1.5% for inflation: 0.5%. Your capital did, in fact, increase by +2%, but your purchasing power has only increased by 0.5%.

Takeaway: While the nominal rate of return is easier to calculate, the real rate of return provides a more accurate inflation-adjusted measure of performance.

Gross and net rate of return 

The gross rate of return is the rate of return achieved on a financial investment, excluding fees and taxes. Some products and brokerages communicate gross rates of return that may look very attractive.

But fees and taxes count! The more fees and taxes you pay, the lower your return. So your gross rate isn’t the best performance measure. And what looks like a great return may, in fact, be quite poor. 

Therefore, the formula to remember is the following:

Real rate of return = the nominal rate of return – inflation – brokerage fees – taxes

Takeaway: Always use your real rate of return to calculate performance. This should not include inflation, fees, or taxes, all of which eat into profit. 

The risk premium illusion: smart or just lucky?

Plenty of traders beat the market (in the short term) by getting lucky. Just like lucky bettors win on occasion in casinos. 

But the traders who succeed long term can successfully identify abnormalities or quirks in the market and take advantage accordingly. This is where skill plays a role — this isn’t luck

Understanding this distinction is important. Consider these two key concepts in trading: the market anomaly and the risk premium:

  • Market anomaly is successfully taking advantage of a given market situation, which, if repeated, would systematically result in a gain. It rewards the trader for their competence.
  • The risk premium is successfully taking advantage of a given market situation, which, if repeated, would not systematically result in a gain. It rewards the trader for their luck.

It’s not always easy to reflect honestly on your own trading. But when assessing performance (and preparing for the next series of trades), consider which of the above applies to your choices. 


How to trade responsibly

To succeed in your trading and investment career, you must remember the following fundamental principles.

1. Know why you’re trading a particular financial product

Trading without a clear purpose is a mistake, and can quickly lead to disaster. Can you justify your choices, and do they match your overall financial goals?

2. Understand how your financial products work

If you don’t fully understand how a financial product works, do not trade it. It may look enticing, but you really need to know the nuts and bolts of a product before parting with your cash.

At the very least, take the time to learn more about it before buying or selling. This will reduce mishandling errors, which can cause some of the most severe financial losses.

3. Distinguish between financial and meta-financial decisions

Not every choice you make in the market has a clear financial or economic answer. We can provide accurate answers to your financial questions. But some others are a matter of personal preference or lifestyle. 

For example, a financial question would be “how much does 2% yield on capital of $1,000?” This has a clear numerical answer. Similarly, “what was the average return of X ETF over Y period?” can be answered with real data. 

An example of a non-financial question is, “How much capital should I budget for trading?” There is guidance around the percentage of income you should invest or how to split your money between savings and investments. But some decisions will come down to your best intentions beyond the data you can gather.  

4. Listen to others but think for yourself

There are countless “experts” online and around the market with advice to sell and “best practices” to copy. Some of them are truly helpful, but many don’t have your best interests at heart. 

Don’t let others talk down to you. In the end, it’s your money and your choice to use it how you please. Assume that you have at least as much common sense as everyone else, and critically analyze every bold statement you read. 

This also applies to the content of this training!

5. When in doubt, keep it simple

Don’t overcomplicate things. There is no such thing as a perfect trading strategy, and you won’t get ahead by stacking ideas on top of each other. Sometimes, ignoring the details and concentrating on the big picture is best. 

Fine-tuning to such a degree makes no sense and could even be counterproductive.

More resources to take trading to the next level

Despite the abundance of scams and dodgy advice, there are many resources available to develop your trading skills:

  • Trading courses
    High-quality trading courses will save you time and ensure that you acquire a solid theoretical foundation.
  • Books
    Excellent trading books provide insight into the thoughts of past and present traders and allow you to discover their strategies, learn from their experiences, and be inspired by their stories.
  • Films and documentaries
    Whether they are pure science fiction or inspired by real-life events, great trading movies can reinforce financial literacy while adding a welcome touch of creativity. 
  • Market news
    Follow the news, decipher the market’s ups and downs, and organize the news you monitor. As an independent trader, consulting top-notch financial news will most likely be an integral part of your daily life.
  • Social networks
    LinkedIn, Twitter, Instagram. Social platforms are a great way to keep your finger on the market’s pulse and interact with other traders so you are not left all alone with your stock market charts.
  • YouTube videos
    Supplement your trading knowledge for free and at your own pace by watching informative YouTube channels.
  • Podcasts
    Stuck in the car, on the train, or the treadmill? Why not use this time to listen to the finest trading podcasts?
  • Newsletters
    First-rate newsletters deliver general or niche information directly to your inbox.

This course summarizes everything you need to learn about trading without getting into trouble and helps you begin trading at your own pace. But it’s only a snapshot of everything there is to learn about the financial markets. 

Your trading practice itself will be a great place to expand and improve your financial and non-financial skills. Be curious and keep learning!

author
Maxime Parra

Maxime holds two master’s degrees from the SKEMA Business School and FFBC: a Master of Management and a Master of International Financial Analysis. As founder and editor-in-chief of NewTrading.fr, he writes daily about financial trading.

To go further

Double bottom patterns are arguably a short seller’s most dreaded trading signal. This “W” shaped reversal chart pattern is a.

July 15, 2024

The double top is one of the most dreaded trading signals for buyers. This ‘M’-shaped chart pattern signals an uptrend’s.

July 12, 2024
Support and resistance

In financial markets, not all price levels are equal. Some attract more attention from investors than others, starting with support.

July 11, 2024