It may seem like an elementary question that is quite straight forward. But in order to be a successful trader we should know ‘How to Trade’. Most of the traders do not give the due importance to this question before they begin to trade. Then when the markets begin to behave in strange ways and not according to what they thought they become confused. It is always better not to look for solutions on how to trade after we are hurt in the market. But most of the beginners are in a hurry to make money in the markets. They fail to understand that trading in the markets is not easy but calls for a lot of work and dedication like in any other profession or business. Without knowing this they plunge into the market and when they begin to lose their capital wisdom begins to dawn on them.
The first step is to understand the market. We should learn about the market timings, what is traded, how it is traded, what is the margin we require, what are the options that we can trade. Since option markets trade only contracts and not actual physical securities we should know the terms of the contract, their settlement and expiry date. If we don’t exit out of the position before their expiry, some contracts call for physical delivery. We have to watch out for such contracts.
Next comes the reason for trading. We should be aware of why we want to trade. There are day traders, and long-term traders who hold on to open positions for longer periods. We should know what type of trader we want to be. It will depend on the time that is available for us to devote for trading. If we have a full-time job then we should not think of day trading. Day trading is for very short period that are minutes or hours. Swing traders hold trades for days or weeks and long-term traders hold open positions for months. This is an important decision to make before we begin to trade.