If you want to learn how to trade stocks you need to know a few things upfront that can save you time and money and could possibly make the difference between becoming a successful stock trader or just another loser that says you can’t make any money trading stocks.

Here are some of my thoughts in no particular order that will help you to become a better stock trader:

Prepare To Get Educated

You spend years getting a college education or apprenticing to learn a trade, don’t expect to become a profitable trader in 2 weeks. Yes, there are always the rare phenom that will be successful from the start just like there are certain athletes that are just “naturals”,

Sadly, most of us aren’t that lucky so we must take the time to train ourselves to trade well. I know you are excited about the prospect of making money in the stock market but you will be much better off if you spend some time familiarizing yourself with the basics of trading.

I would stay clear of trading courses in the beginning because they can be skewed towards one way of trading and might actually be bad advice. Remember this, there are lots of hucksters out to get your money with miracle trading systems and courses and the rookie trader is easily swayed by great looking performance numbers and rising equity curves.

Go to Amazon and search for the trading books that have the highest ratings and read some of the reviews before buying them. One or two should get you off on the right foot. I particularly liked “Trading For A Living” because it covers many of the basics of trading along with some trading patterns that Dr. Elder uses.

Decide On A Method Of Trading

You need to decide how you are going to trade and top traders will write up a formal trading plan that they adhere to religiously. Are you going to trade long only? What about shorting the market? Will you trade just a few stocks or look at all stocks as possible trading candidates? Will you use hedging/leverage techniques? What about your money management plan?

This is why you need to spend some time getting a feel for what trading is really all about. The pros have a plan that they developed that works for them (Key Point) and you need one too.

Without a solid plan of how you will be trading you are just gambling with your money and you will be much better off if you went to Vegas because at least you will have fun losing and might see a couple of shows to boot.

Realize That Trading Is A Business

A hobby is an activity you spend money on that gives you pleasure. A business is something that is intended to make a profit. Which one will your trading become? If you said hobby then welcome to the loser’s lounge.

You need to get serious and treat trading as a business. Businesses have expenses and trading will too. Software, data feeds and computers are just a few expenses you might incur in setting up your trading business. Good record keeping is a must for both tax and performance purposes and when in doubt always consult a tax professional.

Get A Good Discount Broker

If you are just starting out and are not planning on trading large blocks of stock you should look for a broker that charges .01 or less per share. Interactive Brokers is probably the best trader’s choice for anyone looking to keep commissions down. Note: Commissions are a trading expense and you want to minimize them as much as possible without sacrificing good service.

If you plan on trading large blocks of stock then the $5.95 – $9.99 per trade might be more economical for you but since you are just starting out you probably won’t be trading “size” and will end up cutting into your bottom line quite a bit by paying such high fees.

Have Enough Money To Trade

Being undercapitalized will doom a business and trading is no different. If you only have a couple thousand dollars you will severely limit you’re trading options and unless you use margin or other leveraging techniques it will take a fair amount of time to build up your trading account balance.

By the way, please avoid margin or other leveraging methods when you are just starting out.

I would try and scrape together at least 10K to start with and make sure this is not your rent or food money. This HAS to be money that you can afford to lose and with proper money management you can stack the odds greatly in your favor.

Money Management

Part of your trading plan should include a section on money management. There are many different money management techniques and you will need to decide on what makes sense for your trading style.

An example of bad money management is to double down on a loss thinking that you will hit a winner on the current trade. Good money management might be something like putting no more than 5% of your trading account into any one trade and having an exit strategy to minimize any losing trades.

I can’t tell you what technique you should use so you will need to read about different money management methods and pick one and stock to it.

Control Your Emotions

A good trader approaches trading with no emotions. They see a promising trade setup and they calculate their risk and make the trade with a predefined stop to get out in case the trade goes against them and oftentimes an exit strategy for taking profits as well.

Amateur traders ignore their trading plan and go with their gut because they just know that “this trade is different”. They will stick with losing trades because they strongly believe the stock will go back up. They will hang on until it becomes so painful seeing the losses adding up that they finally capitulate and close their position.

They then get frustrated as the stock turns around and rises in price making them think that maybe next time they will hold on a little longer. Couple this with the inability to take a profit and you have a trader that is doomed to fail over and over until they go bust.

Of any factors that can wreak havoc on a trader’s ability to make money in the stock market emotions is easily the number one reason people don’t make money.

Here is a perfect example for those that remember the dot com meltdown in the late 90’s. Stocks got so high and people were so greedy that when the top finally came and prices started to decline people that were sitting on astronomical profits froze like deer in the headlights because they were afraid to sell.

They reasoned that if the stock was $300 a share and now was down to $250 they didn’t want to lose $50 a share and it surely will go back up they told themselves. Keep in mind that they might have picked up the stock for $50 a share several months earlier and had a 5 fold increase in their wealth.

They watched in horror as the stock dropped down to less than a dollar a share and sat there wishing it would just go back up to $50 so they could at least break even on the trade and get their money back.

I can guarantee you that if the stock went up to $50 a share they would not sell because of greed.

Greed will kill you as a trader. Period. Control your emotions.

Since this post is getting rather long I will end here. The take away for you is to educate yourself before you commit your money to trading. Take your time, the market will always be there.

Learn How To Trade Stocks is a post from: Trading Tools Report

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• Preparing Stock Set-ups to Trade

If you plan on trading profitably one thing you have to learn how to do is take a loss on a trade. Obviously no one wants to lose money but the fact is when trading you will have trades that are losers. That’s the nature of the beast.

In fact, the psychological/emotional issues we all have about losing money and our inability to cope with them is one of the primary reasons traders end up losing all of their trading capital.

Many traders will set a mental stop for a trade and when that stop gets triggered they make a rationalization that keeps them in the trade. They will tell themselves that they have a good feeling about the trade and will bend the rules “just this once”.

What almost always happens is that the trade continues to deteriorate and the losses keep growing. Now they say they will get out if it drops x points more or if it rebounds to y they will sell.

They yearn for the option to exit the trade if it could just get back to break even. That would make them happy and they would settle for not making any money on the trade.

I might mention here that hope and gut feelings have no place in trading and as soon as you change the rules on an open trade you have in effect begun a new trade with new rules. Think about it.

Have you ever said these things to yourself? I have and almost every time I “bent the rules” I paid dearly for it.

Losses of $1,500 soon become 4 and 5 times that. You do that a few times and you soon learn a very painful and expensive lesson…

Stick to your exit rules. Play by the book. Follow your system and trading plan.

There, I just saved you thousands of dollars if you will just listen.

The best way to overcome this anxiety of losing money trading is to think of it is a cost of doing business and trading must be treated as a business.

Just as a grocery store will have to throw away spoiled food and take a monetary loss so you too will have to get rid of a trade that has gone bad.

Keep that in mind along with the old trading saying that the first loss is the best loss and you will be on the right path to trading success.

Taking A Loss Like A Pro is a post from: Trading Tools Report

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• how to overcome monetary loss
• right way to take a trading loss

Before we begin let me ask you this question…

If the last 3 times you traded stock XYZ you lost money and now you are getting another buy signal for XYZ do you take the trade or pass?

Now for the lesson…

I produce a fair coin from my pocket and flip it in the air and ask you to call heads or tails. You call heads and sure enough heads comes up. We do this 9 more times and each time the coin comes up heads making you a lucky winner 10 times in a row!

Now what are the odds that the next time I toss the coin it will come up heads again?

Do you have your answer?

I hope you said the odds are 50/50 as each time the coin is tossed it is a brand new independent event with no relation whatsoever to the prior tosses.

In fact, the odds for each coin toss was always 50/50, it can either be heads or tails that’s it. Prior flip results have no influence on the next toss of the coin, you just happened to get lucky with 10 heads results in a row.

Now let me ask you this…

Do you take the XYZ trade or pass?

Sometimes the simplest trading lessons are the best

A Simple Lesson In Probabilities In Stock Market Trading is a post from: Trading Tools Report