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The Basic Skills Needed for Investing & Trading
Every profession has its tools, secrets, and inside knowledge. Those last two are usually reserved for those who spend a year or more in a given field of study or a particular job. When it comes to securities trading, it's best to begin with the basic tool kit. Later on, after you've perfected a method of your own and have several months of buying and selling behind you, the secrets and inside smarts will begin appearing at unexpected intervals. They usually materialize in the form of realization moments after you've just made a mistake or executed a perfect order.
For now, we'll take a closer look at the core skills everyone needs for trading securities. The learning curve is not steep, and the task is actually an interesting one if you tackle it one step at a time. Start by learning the language, the rudiments of average prices, and order placement. The longer you spend on the preparation phase, the more relaxed and competent you'll be when you place your first order.
Moving Averages
The moving average of a series of prices is the most-used indicator of all. It's beloved because of its simplicity, transparency, and effectiveness. The two most common moving averages are the 50-day and 200-day lines. They're calculated by adding together the closing prices for a given number of prior days and dividing by the number of days. So, the 50-day moving averages for XYZ company's shares would tell us what the average price was for that particular period. Moving average enthusiasts pay careful attention whenever the 50-day line crosses over or under the 200-day line. Those events are said to reveal a coming upturn or downturn, respectively, in share price.
Vocabulary
Most people enjoy learning stock market terms and studying the ups and downs of daily price action. The great thing about online study is that there are so many resources. When it comes to lists of trading terms, you're in luck. Just stick to reliable resources, and if you run into a definition you don't understand, dig a little deeper and use at least two sources. It's a fact that buying and selling securities involves hundreds of unique words and terminology that can take a while to get used to. Don't bite off too much at once. Try to learn five new vocabulary words each day, reviewing your entire list at least once per week.
Patience
Some say patience is a quality of personality rather than a skill. In trading, you had best learn to cultivate it as you would a skill, regardless of what it actually is. That's why it's so important to start small and take your time during those crucial first months. Patience is not something you can force. It will, however, come naturally if you focus on learning the fundamentals of the practice and not worrying about how much money you're making. Of course, after you've built up a modicum of patience and experience, it's certainly alright to use profit as a motivator for your activity.
Many people with money on the line tend to get trigger finger syndrome, and sell at the first whiff of a downturn. Likewise, when searching for a good buying opportunity, they have a tendency to put too much cash on the line in hopes of making a killing. These mindsets are poison. They'll take you out of the game faster than anything else. Instead, make patience your watchword and pat yourself on the back each time you avoid an impulsive action.
Order Placement
Order placement is about the rules of the game. As with any sport, understanding these rules is a prerequisite for taking part in the activity. The best way to tackle the details of order placement is to use a simulator, make practice trades, and gain an understanding about how market, open, and stop orders work. One pertinent example tells the tale. By using a stop order, you can set the specific price at which you want to get out of trade, on either the high or low end, or both. That way, you have protection against large losses if share price begins to sink. It's also a way to lock in gains when prices begin to rise.
Money Management
No matter how much money is in your trading account, you'll go through it rapidly unless you use wise money management techniques. Many people set a fixed percentage limit on how much to place on a single purchase. For example, if your account balance is $5,000, and you set a purchase limit of three percent, then you'd put no more than $150 into a particular trade.
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