Trading For Beginners

Knowledge is Empowerment Within Financial Markets

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We will begin with our introductory guides.

These guides are aimed at helping the beginner trader as they set off on their investment journey. Arming them with the essential tools to navigate the world of trading and demystify the financial markets.  We hope to give our clients a clear and concise rundown of how trading Foreign Exchange, Indices and Commodities works. The terminology and techniques to use to get you started. We also have a few guides that detail different types of strategies, such as day trading, for when you feel confident to start or adapt your existing strategy and try something new.

Introductory Guides

Helping you set off on your investment journey.

Forex Trading – Forex, FX trading or currency trading is the buying and selling of the world’s currencies. It is one of the largest and most liquid markets in the world – with daily turnover of $5 trillion. Trading forex allows you speculate on whether the price of one currency will rise or fall against another. You can trade forex as a spread bet – tax efficient or as a CFD. A lot of foreign exchange is done for practical purposes – eg. Large US corporations hedging their profits earned in Europe and bring the home as Dollars. The vast majority of this $5 trillion daily turnover however    is undertaken in order to try and turn a profit and is speculative flows. These FX transactions are carried out by hedge funds, Pension and Insurance Funds, bank traders and the retail trading base – the clients of 3Sigma Markets. Forex Trading is an OTC product. So what does that mean – it is not traded on an exchange like equities are. It is an bespoke market that allows all participants get involved, from multinational corporations to individual investors like us.

Forex is always traded in currency pairs, for example EUR/USD or USD/JPY. Through this process one currency is exchange for the other – ie I buy Euros and I sell Dollars. There’s an exchange rate between each currency pair that fluctuates regularly. Forex traders look to profit on fluctuating exchange rates, speculating on whether the price of one currency will go up or down against another. Forex markets trade 24 hrs a day from Sunday night GMT right through to Friday night GMT – a truly globally market.

Why should I start trading Forex?

  • Lack of barriers to entry – with the power of leveraging you can trade large amounts of forex with just a small amount of capital
  • Liquidity – with FX you are trading the largest market in the world – with this brings ease of entry and exit of positions and ample opportunities within the markets.
  • Access to Leverage – with the power of leveraging you can trade large amounts of forex with just a small amount of capital.
  • The ability to go both long and short a currency – benefiting from movements in the currency in both directions.
  • Forex is an extremely developed market and technology provides us that cutting edge to gain all possible advantages.
  • The FX markets never sleep, providing the trader more opportunities to trade given its 24 hours a day, 5 days a week nature.

Trading Forex – the basics.

Forex is always traded in currency pairs, for example EUR/USD or USD/JPY. Through this process one currency is exchange for the other – ie I buy Euros and I sell Dollars. The EUR/USD currency pair is Euros vs the equivalent amount of Dollars, erg, 1 Euro = 1.14 dollars.  The first currency in the pair (in this case Euro) is known as the base. This is the currency you think will go up or down in value against the second currency (in this case USD), which is known as the quote or term currency. Currencies are often priced to the fifth decimal point. The smallest increment of any trade is known as a ‘pip’, which stands for percentage in point.

Precious metal trading offers a popular way for investors to diversify their portfolios and hedge against market risks. Access to the precious metals markets allows our traders to take positions in an asset class that is highly sensitive to movements in the broader economy. During periods of stress in the broader economy, for example during a downturn, buying precious metals or being long can benefit the investor. At 3Sigma Markets you can access the precious metals market in order to grow or diversify your portfolio with gold and silver investments. There are a wide variety of metals available to trade, from the three precious metals of gold, silver and platinum, to base metals that include aluminium, copper, nickel, lead and zinc. Gold is the most actively traded metal due to its wide range of uses. From use in jewellery and electronics to the large reserves central banks hold, there is a constantly large supply and demand, influenced by market uncertainty, inflation and risk. Gold is the most sensitive to general sentiment, whether good or bad in the broader economy.

Why should I start trading Precious Metals?

  • Hedging – trade precious metals and hedge against future risk – whether good or bad. Precious metals are considered safe haven investments and can be used to hedge against inflation and economic uncertainty. You can also sell precious metals if you feel we are entering a period of prosperity in the wider economy.
  • Diversifying your other trading positions – precious metals allow you to spread you risk and help migrate risk in other trading positions you may hold.
  • Liquidity – although not as big a market forex for example – precious metals do benefit from their international standing and are traded on a truly global market – providing ample liquidity to investors.
  • Low barriers to entry and low costs: Online metal trading makes the process simple, with charting and analysis tools alongside low transaction costs for trading precious metals.

Trading Precious Metals – the basics.

There are a range of different ways to invest in precious and base metals:

Bullion: Those who want the physical gold coins and bars and have space to store them can invest in bullion.

Contract for Difference CFDs: A Contract for Difference allows you to speculate on price movements in a number of financial markets, regardless of whether they’re rising or falling.

Futures: High liquidity and leverage are available with online metal trading futures, providing large potential profits but also losses.

Certificates: Similar to investing in bullion, without the hassle of having to transport and store the metals yourself.

Further contract specifications need to be considered when deciding whether to enter the metal trade. These include the base currency used, contract size, point value and the market opening hours. Otherwise you can begin online metal trading easily.

  1. Treat trading like a business

The most successful traders treat their trading like a business making sure to protect their capital, use leverage effectively and plan how they grow. They use risk management techniques to limit their capital exposure to the markets and they plan how much they will lose on every trade and what that will mean for their account. They avoid the risk associated with emotional trading and use a trading plan.

Treating trading like a business means using leverage in a safe way to grow their capital and become more effective in building profits. Leverage is an effective tool when used correctly, just like a business getting a business loan. It can be used to increase profits but must be factored into a risk management plan.

  1. Manage expectations

Managing expectations is a key requirement to plan how a trader will grow their capital and their account. Some traders start trading with an idea that they will double their account continually and be rich in a year. They fail to realise that they are risk their capital and can suffer losses. Frustration can build when they fail to realise their unrealistic targets and this can lead to greater losses.

The key is to set realistic goals and expectations and to factor in setbacks as well as time to learn and develop. The path to success is full of pitfalls but these can be used as opportunities to learn and grow as a trader. Many mistakes are generally made along the way but as long as the trader is expecting these mistakes then they can be seen in a positive light.

  1. Sometimes it is better not to trade

Sometimes, when the market is going nowhere or when there is a major event coming up, it can be better to step away from the markets and the trading platform. Turning off the computer can end up saving your account in times like this. The market may not always offer trading opportunities to enter on your setup and traders who are impatient can end up forcing trades that have a low probability of success.

FOMO or fear of missing out can have a detrimental impact on traders, leading them to enter trades that end up losing instead of acknowledging that they have missed the entry and stepping away from the market. Traders should also step away from the markets after a series of losses in order to break the cycle of losing. Sometimes this can lead to clarity that something is not working for the trader and when the pressure to trade is taken away they can fix the issue.

  1. Look after your health

This may seem like it is irrelevant to trading but in a way there is nothing more important. Trading is a stressful occupation and the trader must do everything they can to release and deal with that stress in a healthy way. The best way to deal with stress is to exercise. Whether this is a short walk, a swim or running a marathon is up to the individual trader. Martial arts can be very beneficial as they allow the trader to focus on developing discipline as well as exercising.

Sleep is of extreme importance to staying healthy and focussed during the trading day. It keeps the trader alert and allows the body and mind to heal. Just as necessary is eating a healthy balanced diet. A trader should aim for a balanced diet to have enough energy to trade during long sessions and to replenish the body’s fuel reserves. It is important that the traders gets the right balance of working and living, along with making time for family and friends so that they can succeed over the longer term as a trader.

  1. Keep a trading journal

A trading journal is a good way of documenting your journey through the markets. Traders can use it to log their trades, their emotions and any insights they gain. These later points are the most important as your broker can supply you with a record of your trades. The journal is best used to conduct research into the traders psyche during a trading session. Important sessions can then be reviewed. A winning session can be used as inspiration in the depths of a future losing streak, and a losing session can be picked apart for mistakes.

It is useful to document new trading strategies and how the trader trades them. The first time a new strategy is used may not prove successful and the journal can give an insight into elements that can be improved upon. There are always opportunities to lean and develop in the markets and in a traders methodology and a journal can save valuable time in finding these opportunities.

  1. Spend time learning

Very often time spent learning is seldom wasted. A trader will need to be open to constantly learning, researching and developing. The markets never stand still and as the old Wall Street line says, “money never sleeps”. There is always a new dynamic at play in the markets and they are an extremely kinetic environment. Traders must endeavour to stay ahead of the game or at the very least keep pace with it.

This means that a trader must constantly read up on what factors are influencing the markets, be they political, economic or market centric in nature. Traders must then research and learn the markets patterns and behaviours. This can mean many hours of reading and sitting in front of charts. Technical analysis is a very broad topic and most traders will only scratch the surface of many of its areas. Just doing this can take years of study and there is a saying that it takes 10 years to make a trader. This is in part because a trader will above all have to lean and understand themselves before they become consistently successful.

  1. Focus on growth

Many traders fall into the trap of trading their account, constantly looking at their account balance and their profit and loss as it fluctuates with the markets whims. This generates emotions that cause the trader to close winners to early and let losing traders run. In fact the traders should be doing the very opposite, letting their winning trades run and closing losers as soon as possible. Most of those who open an account fail to do this and they end up joining the long list of prospective traders who are forced to give up.

Traders should instead focus on the percentages of their account and on the number of pips they accumulate. Focussing on the percentage gives a fixed and manageable target for the trader to aim for. Focussing on the pips takes the emotions out of trading and can even make trading more enjoyable as it becomes more of a game to try to win. There is nothing wrong with this, as long as the trader holds rigidly to their risk management rules.

  1. Only trade with capital you consider surplus

Trading with capital or money that you need to pay for bills is a sure way to create unnecessary stress and part with that asset. Traders should never use the gas money or the rent to fund their account. The emotions at play in the traders mind as the rent day approaches tend to multiple by the hour and the stress created leads the trader to takes more and more risk before they have to withdraw the money. Worse still if the trader is hit by a series of losses, then they are always on the back foot and under pressure to come from behind and regain their loss.

Traders should only fund their account with capital that they are happy to part with. The traders should accept that this money is already gone and attempt to take the emotion out of the situation. This can be more difficult for a trader who is depending on their trading account to pay bills. Many seasoned traders try to develop additional sources of income in order to remove this stress. It becomes even more important for a trader in this scenario to maximise their winnings.

  1. Find an edge

Successful traders find and develop an edge in the market so that they can get on the right side of the probability equation. They do this by studying the market and finding a pattern or strategy that can successfully help them achieve winning trades on a consistent basis. Having an edge in the market is a key factor is becoming a successful trader. Not only this, but there are some traders who use different strategies to trade in different market conditions. They may have a strategy for when the market is trending or consolidating. They may have a strategy for when the market retraces or they may have an edge for when the market tops or bottoms.

Traders must try to find their edge that they can be confident about and believe in. If a trader does not believe in their edge they tend to take profit too early in their trades. When a trader believes in the strategy they can let their winners run and even add to their winning positions because they are confident that their edge will work over a series of traders.

  1. Follow the trend

The old saying in the market is that the trend is your friend and when traders can jump on board a strong trend, it can be an opportunity to create a spectacular winning trade. Many traders admit that there are some trades that make up the bulk of their winnings in a quarter or year and they are generally part of a trend following trade. When the market trends, it can be highly advantageous for the traders to piggy-back on the move.

Very often a trend will last far longer as anyone expects, particularly, for example, during a bull market in equities. These moves tend to last for years, where as bearish moves can often be sharp and short. Therefore bullish trends can give the trader more time to enter the market and employ a trend following strategy. Traders should try to capture the bulk of the move and not focus on when the market will turn as this can often be just a normal retracement.

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