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Whether you’re looking to trade in your free time or become a professional trader, make sure you’re ready for active markets by following our three steps to becoming a trader.
If you’re new to trading, it is easy to become overwhelmed by all the information about markets, different strategies, and how you can turn a profit. But the truth of the matter is: your journey to becoming a successful trader should be unique to you, your goals and attitude to risk.
However, there are some key steps that anyone looking to trade should follow, to make sure that they understand the basic principles of markets and how to trade them.
Build a strong foundation of knowledge about financial markets, as the level of risk and strategy required can vary between them. It is a good idea to start by researching the markets on offer to you, and make sure you understand the key differences between them.
With IG, for instance, you can trade a range of asset classes:
The next step is to establish a trading strategy that will help you generate a profit in your chosen market, and define exactly how you will enter and exit your trades. A trading strategy is the driving force behind your trading plan – it should help quantify your goals, making sure that you are being consistent and aren’t just making decisions based on emotions.
There are a variety of styles that you can use to trade. These are four of the most common:
The aim of each style is the same – to profit from movements in an asset’s price. The difference lies in how often you want to trade, and how long you will run each trade. There is no ‘one size fits all’ solution, as the right style for you will depend on your lifestyle, personality and how much time you want to spend trading.
Once you have decided your style of trading, you can begin to build your trading plan. This should set out the actions you will take to fulfil your trading strategy, and should include your motivations, goals and how much capital you can afford to dedicate.
A key part of creating a trading strategy is market analysis, which attempts to use the information available to predict the behaviour of markets and create a methodology for identifying entry and exit points.
These methods for market analysis fall into two broad categories:
It is important to note that markets can be extremely volatile, and it is impossible to predict their behaviour completely. But a good trading strategy can help you prepare for any outcome – good or bad.
In trading, ‘risk’ refers to the possibility that your decisions will not result in the outcome you desire. This can mean a variety of things, but most commonly that a trade will make a loss. If you are using leverage, a trade could lose even more than you put in.
Loss is an unavoidable part of trading, and something that traders must be prepared to accept when they participate in the markets. However, potential losses can be minimised by putting a strategy in place to manage your risk.
You can take control of your trading by learning more about the unique risks each market poses, and using risk-management tools such as stops and limits.
Read more about trade planning and risk management.
The final stage in becoming a trader is taking the plunge and trading for yourself. But there is no finish line: you can always do more to progress your knowledge of markets and refine your trading strategy. The best way to do this is to find out what works for you, by executing your strategy and back-testing the results.
Gaining experience doesn’t have to mean risking your capital on live markets. You can start developing your skills and putting your theory into practice in a risk-free environment with an IG demo account.
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.