Getting Started in Tradingjust have to figure out our own capabilities and use them to our
advantage.
- Tools of the Trade
Every craftsperson needs the right tools, and in trading they can
be divided into two broad categories: mechanical and analytical.
Mechanical ToolsThe mechanical part of trading is by far the most mundane aspect
of the game, yet it is responsible for the overwhelming majority
of woe and pain among trading novices. Imagine stepping on the
gas pedal instead of the brake as your car careens toward the
garage wall, and you can begin to appreciate the feeling of hitting
the buy button when one meant to make a sale, or vice versa. In
trading, mistakes have immediate negative consequences. Worse,
because most of us naturally like to avoid pain, novice traders will
often compound their mistakes by sitting on the trade instead of
immediately closing out a wrong position.
To avoid this sequence of events as much as possible, traders
should always practice on a demo platform for at least several weeks
in order to fully familiarize themselves with their trading software.
Almost every equity, futures, and FX broker dealer allows the
trader to set up a practice account and learn to set entries exits and
stops on the system.
Once the trader is comfortable with his (or her) software of
choice, he should trade the account with real money but with
nominal amount of size. In stocks that means 100-share lots, in
futures and options one contract at a time and in FX that means one
minilot sizes of 10,000 units of currency. Why such small amounts?
This step allows the novice to experience the joys and tribulations
of having actual money in the market without the consequence of
assuming terminal risk.
Once the trader is comfortable with the process, what should
his physical set-up be like? Although many of our traders differed
greatly in their use of technology we’ve devised a generic list of