The financial markets provide an opportunity for investors to generate returns. You can use a plethora of trading strategies, that can offer gains over both short and long periods. You can start the educational process by learning about the different types of markets that are tradable. You can then begin practice trading using a demonstration account. Here you should refine your strategy as well as your risk management methods. Lastly, you can begin to risk real capital using the skills you have developed during your learning period.
How Do I Educate Myself?
To educate yourself about the nuances of the financial markets start with the basics. You want to learn about how the market you plan to trade, including some of the nomenclatures that are distinct to these markets. Each market has its learning curve. Trading forex is slightly different than commodities. Once you feel you have a good handle of the basics, you can then move on to more advanced concepts.
Advanced ideas generally cover the building blocks that you will need to build your trading strategy. You can learn about both technical and fundamental analysis and the concepts needed to execute your strategy.
Technical analysis is the study of past price movements and can include concepts such as support and resistance, momentum and trend following. Each of these broader categories includes subcategories where you can learn about specific technical indicators that will help you determine the future direction of a security. This can include indicators such as the relative strength index, Bollinger bands, and Elliot Wave theory.
Fundamental analysis is the study of macro and micro-events that can have an impact on the future direction of security. This can include understanding how an economic event can affect the movements of security or how a micro announcement such as an earnings release can drive the price of a stock.
Using a Demo Account
Once you feel like you developed your trading strategy, you can then begin to test your strategy to see if it works in real-time. The best way to advance your trading strategy in real-time during a testing period is to use a demonstration account. This is an account, provided by your broker, that works using real-time data, but demo account money.
A demo account allows you to see if your strategy will work with real-time data, which might incorporate some of the costs. For example, when you trade, the markets can move slightly every time you enter a trade. This is referred to as slippage. If your slippage is 1-tick, but all you are trading to gain on each trade is 2-ticks, then you will quickly learn that your slippage costs can eat up 50% of your profits.
You should test drive your broker’s trading-platform during this period and should not be afraid of losing capital. This is the time to see how everything works. Execute trades on all the different securities you plan to trade so you can see how the trade works and how it looks when it shows up as a position and how your balances look.
The key take-away is that you want to spend the time learning about the markets and strategies before you pull the trigger on your first trade. This could include educating yourself on the nuances of the markets and the different available strategies. You should also spend time using a demonstration account, which will allow you to test drive security before you start to risk real capital.