The idea of stock trading is an interesting one to many. After all, if you can trade stocks for a living, the level of your potential income could be massive. Not to mention trading stocks is something that can be done from home, making that dream of working from home possible! So, it’s no surprise that so many are asking, “How do I become a stock trader?”
Being a stock trader is interesting because, in most cases, you are your own boss. So, there’s no path outlined on how to get the job. Different people enter the market in different ways. However, I wouldn’t suggest that you quit your job and just start trading stocks out of the blue. No; in order to be a successful stock trader, you’re going to have to get a good understanding of how the market works. Here’s a guide to help you through the process of becoming a stock trader:
Steps To Becoming A Successful Stock Trader
As mentioned above, just quitting your job and jumping into the stock market with little to no knowledge could be a recipe for disaster. Instead, I suggest following the steps below…
Step #1: Get A Basic Understanding Of How The Stock Market Works: The first thing that you should do, if you’re considering becoming a stock trader, is do a bit of research to get a good understanding of how the stock market works. Sure, we all know that the stock market is where securities are bought and sold, and that the buying or selling of securities leads to price movement in the market. However, the stock market is much more than that.
What causes movement in the market? When are catalysts most likely to take place? How do you go about analyzing a company on a fundamental level? Why do investors invest in a company in the first place? These are all very basic questions, but they are all essential to your success (or lack thereof) as a stock trader. So, if you can’t answer these questions, a good place to start is to do a bit of research to ensure that you can. Investopedia is a great place to start!
Step #2: Do Some Research On Trading Strategies: Any successful trader will tell you that they themselves are not the reason for their success. Instead, they found their success through the use of an incredible trading strategy, whatever that strategy may be. At the end of the day, it was the fact that the trader followed a strategy that largely made them successful. So, why is that?
Well, it’s simple, really. You see, as human beings, we are emotional creatures. In the market, the most common emotions that you will come across are fear and greed. These are strong emotions, and if we’re not careful, they can dictate the moves we make, overcoming our common sense. However, following a trading strategy takes these emotions completely out of the equation. After all, a trading strategy doesn’t care if you make money or lose money. All the trading strategy cares about is the “if this, then that” proposition. If the value of this stock hits this point, then this action is taken. This binary focus is a key requirement in being a successful stock trader, and a lack of it will likely lead to losses.
Step #3: Learn About Loss Exposure: Once you’ve read up on a few strategies and feel as though you’ve chosen a couple that will work for you, it’s time to do a bit of digging on money management. At the end of the day, any time you make a move in the market, you are risking taking a loss, and you don’t want to lose your entire wallet on one bad trade.
This is where loss exposure comes in. The idea of loss exposure management is to limit the amount of money that you use on any given trade or in all active trades to a percentage of the money you have to trade overall. That percentage largely depends on the risk level you’re comfortable with. However, by limiting the money you spend on each trade, or in all active trades, you limit the losses you stand to take should things go wrong.
Step #4: Consider Getting Training: Once you’ve done your research, you’ll have a good idea of whether or not you understand what’s going on in the market, and chances are that you will. However, if you don’t, don’t get discouraged. It just means that you’ll likely be best with a teacher.
There are a couple of ways that you can go about getting training. You could consider attending a school of finance. There are several schools of finance that will teach you how to become a better stock trader. However, if you don’t have time for traditional schooling, you don’t have the money to afford a tuition, or you simply don’t want to go into traditional schooling, you’re not out of luck. There are several trader trading courses online that are well worth the money and relatively inexpensive. One of my favorites is TradeSpoon.
Step #5: Test Your Knowledge – Once you feel as though you’ve got a good idea of what you need in order to get started, it’s time to test your knowledge. After all, you don’t want to jump into the market, using your hard earned money, only to make mistakes and lose the money you’ve saved to get started with.
In order to test your knowledge, it’s a good idea to sign up for a free demonstration account with one of the internet’s many discount brokers. Most brokers, if reputable, will offer a free demo account in which trades are made using virtual money. This way, you can test your trading strategy before you ever risk a dime, ensuring that your strategy works well for you.
Step #6: Refine Your Strategy: Now that you’ve made a few trades using your free demo account, it’s time to think back to the trades you made that didn’t go well. Can you think of a reason they didn’t go well? No strategy is 100% perfect, but making minor changes to a strategy that seems to be doing well can greatly reduce your number of losing trades.
Step #7: Start Trading: Finally, it’s time to put your newly found knowledge to the test. By no means should you quit your job at this point. Instead, start making some money and building a bank first. Use your newly found knowledge in the market to start trading with real money.
Step #8: Save: Finally, it’s time to start saving your money. Any time gains are generated in the market, put that money aside. Don’t use it for anything other than building your trading portfolio. Continue to do so until you have at least 6 month’s worth of income from your current day job.
Step #9: Consider Becoming A Full-Time Stock Trader: Once you have a decent nest egg saved up and you are confident in your ability to generate gains as a stock trader, it’s time to consider becoming a full-time trader. Think about the amount of time you devote to stock trading and the amount of money you make when you do so. How does that compare to your current job? Do you enjoy stock trading more than your current job? Can you be disciplined enough to treat stock trading as a job? If you answer all of these questions and feel as though full-time stock trading is for you, it may be time to start a new career as a trader!
At the end of the day, a work from home situation is never an easy one to create. However, becoming a stock trader is not something that’s out of reach for those looking to use this option as their way to break free from the rat race and become their own boss!