How to Get Into Trading - Bullish Premarket

How to Get Into Trading: A Beginner's Guide to Trading

Trading and investing your money on the stock market offers an exciting path to growing your wealth, but diving in without preparation can lead to costly mistakes. Whether you're drawn to the fast-paced world of day trading or the strategic approach of long-term investing, taking a well-planned, step-by-step approach is crucial.

This guide will walk you through the basics of getting into trading, emphasizing the importance of starting with safer investments like term deposits and Exchange-Traded Funds (ETFs) before exploring more advanced trading strategies.

A beginner's trading setup on a wooden desk. A laptop displays a stock

Step 1: Learn the Basics of Trading

Before putting any money into the market, educate yourself on how trading works. The financial markets can be complex, but gaining foundational knowledge will make navigating them easier and less intimidating.

Key Concepts to Understand

  • Types of Trading:
    • Day Trading: Fast-paced trading where positions are opened and closed within the same day.
    • Swing Trading: Holding positions for a few days to weeks to capture medium-term trends.
    • Position Trading: Longer-term investments focused on months or even years.
  • Market Instruments:
    • Stocks: Shares of individual companies.
    • ETFs: Baskets of assets offering diversification.
    • Options: Contracts giving the right to buy or sell an asset at a specific price.
    • Forex: Currency trading.
  • Terminology: Understand key terms like bid/ask price, stop-loss, support/resistance, and technical indicators like moving averages and RSI (Relative Strength Index).

Where to Learn

  • Books:
    • The Intelligent Investor by Benjamin Graham (focuses on long-term investing).
    • A Beginner's Guide to Day Trading Online by Toni Turner (for active traders).
  • Online Resources:
    • Websites like Investopedia for beginner-friendly explanations.
    • YouTube channels offering tutorials and real-world examples.
  • Courses: Platforms like Coursera, Udemy, or Skillshare offer structured trading courses.

Step 2: Start with Safer Investments

Jumping straight into trading can be overwhelming and risky, especially for beginners. It's smart to allocate a portion of your money to safer investments like term deposits and ETFs to build your financial foundation while you learn.

Why Invest in Term Deposits First?

  • Safety and Predictability: Term deposits protect your principal and offer a fixed interest rate, making them a secure way to grow your savings.
  • Liquidity for Short-Term Needs: Many term deposits can be tailored to your timeframe, from a few months to several years.
  • Building Capital: Use the interest earned to gradually increase your trading budget.

Why Start with ETFs?

ETFs are an excellent way for beginners to gain exposure to the stock market without the complexity of picking individual stocks. They are diversified, professionally managed, and offer lower risk compared to trading single equities.

Best ETFs for Beginners

  1. Vanguard S&P 500 ETF (VOO)
    • Tracks the S&P 500, providing exposure to 500 of the largest U.S. companies.
    • Why it's great: Steady growth potential, low cost, and a proven track record.
  2. iShares MSCI World ETF (URTH)
    • Offers global diversification by tracking stocks from developed markets worldwide.
    • Why it's great: Reduces risk by spreading investments across multiple regions.
  3. Schwab U.S. Dividend Equity ETF (SCHD)
    • Focuses on U.S. companies with strong dividend payment histories.
    • Why it's great: Provides growth along with regular income from dividends.
  4. Vanguard Total Stock Market ETF (VTI)
    • Covers the entire U.S. stock market, including small-, mid-, and large-cap stocks.
    • Why it's great: Broad exposure makes it an easy "all-in-one" choice for beginners.

How Much to Invest

  • Term Deposits: A good starting point is allocating at least 20–30% of your initial capital to term deposits to ensure stability.
  • ETFs: Consider investing another 40–50% in ETFs for gradual growth while you familiarize yourself with market dynamics.

Step 3: Open a Trading Account

To trade actively, you'll need a brokerage account. Choosing the right broker can make a big difference in your trading experience.

Features to Look For

  • Ease of Use: A beginner-friendly platform with an intuitive interface.
  • Low Fees: Look for low commissions and no hidden charges.
  • Tools and Education: Many brokers offer analysis tools, webinars, and tutorials.

Top Brokers for Beginners

  • Robinhood: Commission-free trading and an easy-to-use app, but fewer advanced tools.
  • Fidelity: Excellent customer service and robust research resources.
  • Interactive Brokers: Great for when you're ready to scale up to more complex trades.

Step 4: Practice with a Demo Account

Before risking real money, spend time practicing in a simulated trading environment. Demo accounts let you test strategies and understand how markets move without financial risk.

Best Demo Accounts

  • eToro: Offers social trading features and a user-friendly demo.
  • Thinkorswim: A sophisticated platform for more advanced practice.
  • TradingView: Ideal for technical analysis and charting.

Step 5: Develop a Trading Plan

A trading plan is your roadmap to success. It helps you avoid emotional decisions and stick to your goals.

What Your Plan Should Include

  • Your Trading Goals: Define what you want to achieve—income, wealth building, or learning.
  • Risk Management: Set limits, like only risking 1–2% of your capital per trade.
  • Preferred Strategies: Decide if you'll focus on technical analysis (charts, patterns) or fundamental analysis (company performance, news).

Step 6: Start Trading Small and Scale Gradually

When you're ready to trade with real money:

  • Start Small: Use a small amount of your trading capital to minimize risk.
  • Focus on a Few Assets: Avoid over-diversifying; stick to one or two stocks or ETFs to begin with.
  • Monitor and Adjust: Keep a journal to track your trades and refine your strategy over time.

Additional Tips for Success

  1. Diversify Your Portfolio: Even as you become more comfortable trading, maintain a mix of safer investments like ETFs alongside your active trading portfolio.
  2. Control Emotions: Fear and greed can lead to impulsive decisions. Stick to your plan.
  3. Never Stop Learning: Markets evolve, and so should your skills. Stay updated with news and trends.
  4. Accept Losses: Not every trade will be profitable. Learn from your mistakes and move on.

Conclusion

Getting into trading is a journey that requires preparation, patience, and persistence. By starting with safer investments like term deposits and ETFs, you can build a stable financial foundation while gaining valuable market experience.

As you develop your skills and confidence, transition into active trading with a clear plan, strong discipline, and a commitment to continuous learning. With time and effort, you can master the art of trading and work towards achieving your financial goals.