Broadly, traders focus on six financial instruments. Forex traders focus on trading global currencies while commodities traders focus on trading commodities. On the other hand, indices traders focus on trading indices such as Germany’s DAX and the S&P 500 while cryptocurrencies traders focus on trading currencies like bitcoin and ethereum.
Finally, economic traders focus on trading treasuries, which are issued by countries. So, here is how you become a master stocks trader.
→ If you are a Beginner, this is the Guide that works for you
The first major decision you’ll need to make is about the country of the stocks you need to trade. Ideally, you should focus on trading stocks of countries you have a good understanding about. For example, it would be challenging for you to trade stocks of countries like Nigeria or Kenya. This is because of the opaque nature of these companies.
As you start, I recommend that you trade stocks from the United States, Germany, and the UK.
Decide the Kind of Trader you Are
The second thing you need to do is to decide the kind of trader you are. There are three types of traders.
- First, there are day traders. These are people who buy stocks and sell them the same day or the same hour.
- Second, there are swing traders who buy and sell financial assets within a few days.
- Lastly, there are long-term traders who buy financial assets and exit after a month or more.
What Moves the Stocks
You now need to understand what moves the stocks up and down. As a trader, you should not focus on the fundamental issues like the valuation of the company. You should only focus on the valuation if you are a long-term investor who is focused on the intrinsic value of the company.
As a day trader, you should focus on the chart patterns of the stocks you want to trade.
To understand how charts move and how to interpret them, you should learn how to use technical analysis. This is an analysis that focuses on the chart patterns using different types of technical indicators.
Indicators are based on several mathematical formulas, which help traders make decision on the future movements of the chart.
→How to Master Technical Analysis
On the above point, there is a caveat. While we don’t focus on the valuation of the company to trade stocks, we pay close attention to their news.
When a company announces a major news, the chart tends to move either up or down. For example, a while back, General Electric announced that it would slash its dividend. A few weeks later, the company announced that it was under investigation by the SEC. As shown above, the share price has tanked.
The same applies to the earning season. Every quarter, the law mandates companies to release their financial results.
As a trader, you need to come up with a strategy on how to trade when a company releases results. Historically, the company’s stock tends to either fall or rise sharply after they release their data.
Another period you must know is during consolidation. During this period, companies merge to save costs and become larger organizations. When the news is released, the stock of the two companies tends to either rise or fall sharply.
By understanding all these, you will likely become a successful global trader. Remember, you will not always make money and so, you should ensure that all your trades are protected using a stop loss.