The Financial Goals Of A Beginning Trader

I mentioned in the last post that a beginner traders goal should be to lose LESS than 10 percent of your overall trading capital in year one. This of course assumes you can survive for a year from either other income source/s or work outside of your trading. You may be reading this and thinking, "I'm not in this to lose 10% in year one, I'm trading stock to make money", and that's a valid point. Nobody starts trading stock to lose, but the fact of the matter is that most beginner traders get wiped out fast. Very fast. A lot of traders will lose 10% a lot more quickly - some will lose that much in a week. Imagine starting off with $100k and losing $10k in a week. How would you feel? I know how you would feel, you'd feel ill. You'd want to walk away and quit or you would want to get your losses back more quickly so your trading would lose discipline and before you knew it you'd be $20k down and wondering what hit you. You'd be wishing you had just got a job paying $500 a week instead, at least that made you money.

Your Goal In Year One

1) Cover your trading expenses
2) Generate a return of 1.5-2 times the interest rate on comparable riskless method of investment. So if your high paying interest account pays 5.2%, your aim would be 7.8-10.4% return.
3) Don't throw tons of money at gurus and expensive trading systems.
4) Also attribute any expenses from software and learning materials towards your trading account.

If you can achieve a return higher than a risk-free interest rate in year one as a beginner trading stock, then you are on the path to success and can look towards the next level which is becoming a semi professional stock trader - intermediate level.

Online Stock Trading Broker Basics

Before you can start trading stock online you need to find a broker. The principal considerations as a trader should be to find an online platform that is both reliable and competitively priced. Depending on how often you trade, the costs can really add up so choose carefully. When trading stock, remember that you have to also take into account the difference between the bid and the offer before you are in profit.

What Is Bid and What Is Offer?

Bid and offer is basically the sell ( bid ) and buy ( offer ) price. For example if a stock was 38p to sell and 40p to buy the difference between those two prices is known as the 'spread'. To make a market in the stock, marketmakers set the prices and are often in competition with each other to provide liquidity and get the business. Likewise, prices depend on how much stock each marketmaker has on their books. If it's in short supply it's will often be more expensive to buy. When you action a trade through an online broker, the system will usually get a small improvement on the price quoted on stock monitoring systems. That price is known as the touch or yellow strip price. For example you may buy 1000 shares in the company above and get them for 39.7p each instead of 40p.

When trading stock there are occasions where online brokers will not allow you to buy or sell stock above normal market size ( this varies with great regularity ). In these instances the broker has to call the marketmaker to get a price and then put the trade through manually on the system after confirming it with yourself.

I am going to finish this post with a statement that may surprise or even shock some of you. When you are trading stock online as a beginner, you should not lose more than 10% of their overall capital in the first trading year. I will talk more about this in the next post on trading stock to win ( and survive ).

Trading Stock - Mastering Emotions To Become A Professional Trader

Plan to trade and trade the plan. Without a plan and a target firmly set where you will exit a trade in the event of failure, you are doomed to letting emotions influence your decision making. Before I get into talking about the technical side of trading stock, let's go back to basics and look at human emotion and what motivates us as people. The primary driving factors of any individual when it comes to money are fear and greed.

Fear that you will lose. When you are in a losing position, unless you have already decided where you will exit the trade you are in danger of going into denial and holding a losing position. This can be absolutely disasterous. To be quite frank with you, the worst thing that can happen in that situation when trading stock, is that the position goes out of a loss and back into profit. Why? Why you ask... when I have ended up in profit, surely that's a good thing right? Wrong! The market has rewarded you for a bad decision and as sure as eggs are eggs, next time you are in that position you will try your luck again. It could harm you financially or even worse, if you're a really bad planner, it could wipe you out. Without money a trader has no inventory left at his/her disposal.

Likewise greed - not knowing when to close out a winning position when trading stock. What can often happen there is that you end up watching a stock plummet back down to where you bought it or even below. Instead of taking a profit a long time ago you end up waiting and watching for it, hoping it will go back to the price it was at before, or even higher before you close out the position.

From the examples above you can already see why trading stock can be an emotional minefield. Once you know yourself and how emotions and psychology plays its part in trading stock, you can eliminate a lot of what could potentially wipe you out when pursuing a career as a trader. We will revisit emotions and psychology again.

In the next post I will talk more about the technical aspects of trading stock.