How to Start Trading in Stock Market: 6 Steps for Beginners

Are you a new trader and want to make it big in stock market?

Are you fascinated by the red and green flickering numbers on the screen and want to know how they work ?

Have you heard amazing stories of some of the legendary investors or traders who have made it big in stock market and now you also want to walk on the same path ?

Have you always wanted to understand what the technical charts indicate and how you can use them to make real money ?

These are some of the questions that every new trader has in his/her mind and they just want to enter the realm of stock market with full excitement and make it to the top. Stock market is a great place to fulfill your dreams and many have conquered this subject but let me tell you that it’s not as easy as it looks and it needs years of practice to master.

These are some basic steps which every aspiring trader should follow before actually trading with their hard earned money –

1.      Learn the basics – We learn subjects in school or college from the very basics. It is very important to learn the basics of stock market too, like what is a stock and why do stocks move up and down and how can we buy them and short them and make money out of it. Learn the basic terminologies.

2.      Learn Technical Analysis – Technical Analysis is the study of technical charts or price behavior laid down on a graph. It is a very prominent study followed by millions across the globe and really helps in decision making. To further study technical analysis, you can study the following points –

a)      Candle Sticks – There are various types of candle sticks and they basically tell us about the movement of the price on a particular time frames, for example, daily, weekly, monthly, etc.

It is very important to learn the basics of candle sticks as they are the starting point of learning technical analysis. People also use other forms of price reading as line chart, bar chart, Heikin Ashi candle sticks etc.

b)      Patterns – After learning about candle sticks, we can learn about the basic patterns that the price forms, like Cup and Handle, Head and Shoulders, Pole and Flag etc. It is very important to understand why price makes these kinds of patterns and what’s the psychology behind them that makes it work? I believe that if we understand the concept, rather than just following the patterns, we would get more conviction to trade on these patterns when we see one.

c)      Indicators – Indicators help a lot when a trader is trying to get a hold of technical analysis. It is often seen that once a trader has enough experience of the markets, they usually remove all the indicators and use virgin price action to trade but in the initial days/weeks/years/ it is very important to take advantage of these. There are a lot of indicators out there and you should try a couple of them before you can chose a few or even one which suits you. Some of the famous indicators which every trader should study are Rsi, Macd, Moving Averages, etc.

d)      Strategies – once you get a hold of the candle sticks, patterns and indicators, you can make your strategies of learn a few from a mentor of books. Strategies are a like a written "plan of action" and help to take the noise out of the trading calculation. Strategies help a lot as trading is a game best played with minimum or no emotion and once we have a written plan, more than half of the work is done.

3.      Psychology – It is the most important part of trading but often under estimated by new traders. Trading is all about managing our emotions while our money is on the line and it’s not an easy task as we are more concerned about the technical aspects of trading that we forget that we are not playing this game alone. We are playing this game with millions of other traders and their human behavior.

We need to understand why people do things the way they do it and what influences their behavior and decisions and most importantly our own. Reading a few psychology books really helps ( Recommended Books article ) and the psychology part of trading is even understood best when we learn from our own mistakes. I know we have to pay the fees to the market to learn about these concepts but believe me, it will be worth the lessons that the market will teach us.

4.      Fundamentals – We should have a great deal of understanding of the technical part of trading but learning about fundamentals also helps a lot. The combination of technical and fundamental study is a great recipe for success in the stock market. Fundamental analysis is a very broad study but we can use the basic aspects of it along with our technical study.

5.      Risk factor – Risk is the most important factor that should be taken into consideration. Remember, that this is a battle of minimizing our risk as much as possible as it is the only thing under our control. We can’t control the price movement, but we can surely control how much we are willing to lose in a trade or in a series of trades. I have seen some great and knowledgeable traders blow up their entire trading account because they didn’t gave emphasis to risk.

6.      Journal – a journal helps a lot in giving us a clear picture of what went good and what didn’t. We should maintain a trading journal as it helps in reflecting our mistakes and keeping a record of all our trades. We can rectify our mistakes only if we keep an account of them.

We should include important aspects in our journal as what trade we took, when did we took it, what was the reason behind it, what is our stop loss, how much did we lose or gain from that trade, what was the reason for exit etc.

              

There is a lot more that goes into trading but these are the basic steps that each and every aspiring trader should consider before diving into the ocean of stock market trading. 

I hope it helped clear some doubts as I got a lot of requests from my Twitter friends regarding this topic as there are many  who want to start their journey but have no idea how to go about it. Any further clarifications are most welcomed in the comments section below. Happy Trading !