HOME   Education   The Basics
The Basics

If you are new to trading you should familiarise yourself with some critical elements to trading.

Do not jump straight in and trade - there are many common mistakes that traders make which you should be aware of so that you can teach yourself how to avoid these where possible. Always open a Demo Account first and test the water. Trading is not for everyone and most new traders lose more than they make.

Have a strategy. Test the strategy with a Demo account. And re-test it again and again. Your strategy should include:

  • Planned frequency of trading
  • Time of day when you plan to trade
  • Technical indicators you plan to use
  • Buy/sell signals you plan to use
  • Estimated risk and reward for each trade
  • A daily stop limit to protect your total capital base

Learn how to use leverage responsibly. Trading on margin enables traders to "put on" much larger trades than if they were buying the underlying assets. This amplifies losses as well as profits. Look at volatility in the asset class you wish to trade.

Be sure you understand your objectives. Set yourself targets, and stick to them.

Don't chase your losses. New traders typically lock in profits too early, and run loss making trades too long. Have a trading strategy and stick to it. Use limit and stop loss orders to manage your positions and your money, and not your emotions.

Avoid emotional trades. Trading on emotion can result in you throwing your trading strategy out the window. It can lead to indiscipline in trading and ignoring your original objectives or strategy.

Educate yourself about the markets or the market you wish to trade. Knowledge is power.

Learn to control your "heuristic biases". A cognitive bias describes a replicable pattern in perceptual distortion, inaccurate judgment, illogical interpretation, or what is broadly called irrationality. Thinking that every "winning trade" is down to your genius perception, and every losing trade is down to the markets or world conspiring against your genius is one of the many biases even experienced traders suffer from.

Never trade money that you cannot afford to lose.