Many have tried their hand at stock trading and reaped nothing but disappointment. Who or what’s to blame? The culprits vary, from ignorance to overexcitement and impulsive decisions. Luckily, you can avoid their fate by doing several things. First and foremost, familiarize yourself with the fundamental steps every stock trader should follow. Here’s an overview:

Step 1: Understand the Basics

The first step to take on your journey to trading stocks is learning the basics. Research what stock trading means. In a nutshell, this venture allows you to buy and sell company shares. Unlike investing, which focuses on long-term wealth accumulation, stock trading is all about profiting from short-term price movements.

Also, learn how the stock market works as well as the different types of assets stock traders have access to, such as common stocks and value stocks. This knowledge will help you make the right decisions to a large extent. The good news is there are countless online learning materials that will acquaint you with the essentials of stock trading, and they are free.

Step 2: Choose the Right Brokerage

Success in this venture demands the right broker. Hundreds of service providers are at your disposal in the digital age. But here’s something they won’t tell you: some are built different, and others are nothing short of inferior. If you mistakenly sign up with an inferior broker, your experience will be as far from ideal as it can get. You will often be inconvenienced by varying issues, from poor execution and high slippage to excruciating fees and delayed transactions.

You have to sign up with the right stock broker. This refers to a service provider that’s, first and foremost, regulated by distinguished authorities like the FCA and CySEC. The broker’s credibility and reputation should also be augmented by reviews and recommendations from independent sites like BrokerRaters.com. Don’t forget to check each platform’s costs, ease of use, and asset variety before filling out the registration form.

Step 3: Set Your Goals and Budget

Many traders have failed terribly because they dove in without a strict budget and clear goals. You need a clear-cut budget to avoid falling prey to emotional decisions and overexposure to risk. Before budgeting, scrutinize your financial situation and determine how much you can afford to lose. The most common expert advice is that, as a trader, you should risk a maximum of 5% of your total household income on trading and less than 1% of your entire capital on each trade.

Unambiguous goals will fuel your rise to the top. Without them, you’ll be more likely to make impulsive decisions and entertain unnecessary risks, and both of these issues will magnify potential losses. While setting the best trading goals for you, be realistic. Don’t rely on wishful thinking too much because that’s the surest route to disappointment and frustration.

Step 4: Build Your Knowledge

You shouldn’t hope to get by with basic knowledge. Your success will depend highly on how well you understand key concepts besides the fundamentals, like what influences market behavior, the intricacies of trading psychology, and more. First, familiarize yourself with crucial factors that drive stock prices, especially market sentiment and company earnings reports.

Then, study fundamental and technical analysis in deeper detail. This is crucial because fundamental analysis will help you pick the best stocks to trade, and technical analysis will make it easier to determine the best time to buy/sell your chosen instruments. Don’t forget to research and master trading psychology because it’s the key to avoiding numerous pitfalls, including overtrading, FOMO, and revenge trading.

Step 5: Develop a Trading Strategy

Your trading strategy is a crucial guidepost that dictates what, when, and how you trade. You shouldn’t trade stocks without a good strategy because your odds of making impulsive, ill-advised decisions will be significantly higher.

While crafting your trading strategy, consider the type of trader you’d like to be. There are different types of traders, including day traders, swing traders, and scalpers. You can be any trader you wish to be, provided factors like your availability, risk tolerance, and capital support it. After identifying the type of trading that suits you, stipulate clear entry and exit rules in your strategy. Finally, craft a clear risk management plan.

Step 6: Practice with a Demo Account

At this point, you are knowledgeable and have a solid strategy. It’s now time to test yourself in real market conditions. Go to your chosen broker’s official page and open a demo account. Find a better alternative if the service provider you picked doesn’t support demo trading. This is crucial because, without sufficient practice, your odds of making it in the stock trading scene will be slim to none.

While practicing with a demo account, do what you’d normally do if it was real cash you were using. Don’t treat demo trading like a game and open random positions just because you’re using free money. Use the same strategy you plan to use, and follow everything to a T, including entry and exit rules. If you make mistakes, learn from them and strive to become a better stock trader.

Step 7: Start Trading

Several signs will indicate you’re ready to shift from demo trading to a live account, beginning with consistent returns. Before opening a live account, ensure you can generate consistent profits with your demo account. Take a few months to gauge that; don’t make this crucial decision based on a few lucky trades alone. Also, vet your ability to stick to your strategy, control your emotions, and manage risk.

If all signs point to yes, shift to live trading. Start small; that’s the best to avoid sizable losses that can demotivate you or negatively impact your ability to keep trading. Stick to your strategy and only make tweaks when necessary. If you lose money, don’t get too emotional. Identify where you went wrong and strive to do better. Avoid trying to recoup by doubling down or increasing your trading frequency.