Stock trading may seem like an overwhelming experience for beginners, and that due to two main reasons: the lack of education and the usage of trading strategies that are too complex for the early stages. Dealing with stocks will be a challenging process since these are some of the most volatile instruments in the financial markets.
Start small and keep things simple
Any trading strategy should have four major parts: technical analysis, fundamental analysis, sentiment analysis, and risk management. Most of the online material on the online trading of stocks claim that the fundamental part plays a major role, but that may not be the case all the time. It will be much better to understand the technical side of the market since that will give you a perspective on what drives the price action.
By starting with technical analysis, you’ll be able to understand how the underlying order flow influences the movement of price and that many patterns keep repeating themselves over and over again, across many stocks.
Key details of the trading strategy
When it comes to online trading of stocks for beginners, the capital available for trading is generally limited. Since people can’t afford to invest large amounts into stocks, short-term trading is the ideal choice.
That’s the main reason why we’ve emphasized to focus at first on technical analysis. In the long run, fundamentals drive the markets, but in the short run, you’ll see prices perform against what looks to be the obvious directional bias.
There are many technical strategies for stocks online, most of them using a combination of price indicators, and although some of them will work, it will be much easier to get accustomed to having clean charts from the start.
Breakout strategies represent some of the most effective setups because of a combination of several key important factors. A breakout trader tries to understand and anticipate the future direction of price based on the past performance and by analyzing the market context. Having a “with-trend” approach from the beginning will put you in a favorable position, even though the market will not perform as you expect sometimes.
Against what some of the experts claim, technical setups are proven to work, both for small and bigger time frames. You’ll just need some practice until you understand the market rhythm, as well as until you develop the set of skills that are required to trade effectively.