If you’re new to trading, it’s important to understand the basics before you start investing your money. There are many types of trading, including forex, stocks, and cryptocurrencies. Also, the understanding of major stock exchanges is very important to understand the overall market.
Main Stock Exchanges in the World
Almost every country in the world has a local stock exchange. But if you’re looking for a larger company’s stock, chances are that it’s traded on one of the world’s main stock exchanges.
New York Stock Exchange (NYSE)
The NYSE is home to nearly one-quarter of the world’s market cap. Its listings used to be even more dominant in the U.S. and the world. The NYSE lists much of the S&P 500, the Dow Jones Industrial Average, and the world’s largest corporations. It is also a publicly traded company with over 2,000 employees.
With approximately 2,400 listed companies, the NYSE is the second-largest stock exchange in the United States and seventh worldwide. In terms of market capitalization, the NYSE is the world’s largest stock exchange.
Nasdaq is the other U.S.-based powerhouse, with a growing share of market cap. Once viewed as an upstart market to the NYSE, its tech-savvy has helped it attract many of the world’s hottest stocks.
As of now, there are 3520 companies listed on the NASDAQ stock exchange in the United States with a total market capitalization of $23.17 trillion.
Shanghai Stock Exchange
China’s biggest stock market is the third largest in the world and gaining its footing as the country’s leader.
As of October 11, 2023, there are 1,683 companies listed on the SSE, with a total market capitalization of RMB 414,590.88 million 1. The SSE has two main boards: the Main Board and the STAR Market. The Main Board has 1,585 listed companies with a total market value of RMB 421,831 million 1. The STAR Market has 44 listed companies with a total market value of RMB 33,491 million.
Tokyo Stock Exchange
The Tokyo Stock Exchange is the fourth-largest stock market in the world by market cap. The Tokyo Stock Exchange is the largest in Japan with close to 3.9 thousand listed companies. the market capitalization of all shares on the Tokyo Stock Exchange was JPY 854,437.277 billion in September 2023.
London Stock Exchange
By market cap, this is the fifth-largest exchange in the world. As of October 2023, the London Stock Exchange has a market cap of $54.04 Billion.
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Common Mistakes New Traders Make
New traders often face problems and struggles in their early trading careers and get easily discouraged if things don’t go as planned. Some of the most common mistakes new traders make are:
Trading based on emotions
There is nothing more dangerous in the trading world than making erratic decisions based on fear, disappointment, rage, excessive optimism, or greed. Some traders, no matter how smart they are, can’t deal with the stress of day trading and fall into the trap of emotional decision-making.
One of the most common trading mistakes among new traders is, without doubt, overtrading. Don’t trade more than the market allows. Never chase the market for trading opportunities and don’t feel angry if you miss a five-star trade.
Feeling overwhelmed by the excessive amount of data
One of the most common trading problems is too much information is also counterproductive. The more you look to learn, the more you will see how much else is to learn. So, instead of knowing small pieces of everything, try to become an expert in a particular field. You don’t need to know everything about investments, but you should know what you are doing.
Inability to manage risk
Risk management is one of the most relevant topics you should understand when trading the global financial markets. Unfortunately, beginners in trading usually completely neglect the basics of risk management. As a result, they learn it the hard way by actually facing losses.
Traders start their trading journey with caution and in a responsible manner. However, after following their trading plan and enjoying profitable periods of trading, they became overconfident and engaged in overtrading with excessive risk-taking. Overconfidence is a sweet poison that can kill your trading career.
Following market gurus instead of doing your homework
Instead of doing their research, many new traders follow the market gurus who market themselves as experts.
There is no holy grail in trading. It takes patience, discipline, and experience to survive and make a profit in the trading world.
Adding too many technical indicators to a chart
There are many types of technical indicators which assist traders in understanding the stock market better. A common beginner’s mistake is to apply a bunch of indicators to a chart without actually knowing how they’re calculated or how to interpret their values. The important thing is not to overcomplicate your trading system. This can lead to something called analysis or indicator paralysis.
Trading against the trend
Catching the peaks and troughs of bull and bear runs is very difficult, and can be dangerous even for experienced traders. Following the crowd and riding the waves of a trend is much more effective than trying to take advantage of small ripples during counter-trend moves.
Fundamentals – The neglected essentials
Fundamentals play an extremely important role in price moves. Important support and resistance levels are often broken when fundamentals change and trends can reverse when macro-economic numbers take a 180-degree turn. Without technicals, we wouldn’t be able to get exact entry and exit points, spot important support or resistance levels, or determine the strength of a trend. Many new traders avoid the fundamentals.
Trading around important market releases
Trading the news, especially important ones can be exciting as it produces large volatility in the market. However, bear in mind that news trading is highly risky and speculative.
Predicting where the price will move after important reports are announced is quite difficult as the price may often decide to move both ways, taking out stops of both long and short positions. Afterward, the price usually returns to where it was trading before the news was released.
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Not keeping a trading journal and learning from past trades
The objective of a trading journal is to track your trades, performance, and decisions over time. It allows you to reflect on the previous trades and evaluate the trading methodology that has been used. Most of the time, the reason for poor trading performance isn’t the trading system itself, but the inability of a trader to stick to the rules of that system. Many new traders fail to understand the importance of journaling and ignore it.
- Make a Trading Plan
- Learn the Basics
- Make use of Stop Loss
- Take your Time Selecting a Broker
- Think about Money Management and Risk Management both
- Stay Updated with the Financial News
- Don’t Switch Strategies
- Pick a Trading Style
- Don’t Get Emotional
- Set a Space for Trading
Make a Trading Plan
One of the first and most important steps for any new trader is to make a Trading Plan. This will help them trade in a rational manner and to a set strategy.
A trading plan is a systematic approach to trading that outlines the rules for buying and selling securities, position sizing, risk management, and tradable securities. It is an integral part of a trader’s strategy that helps maintain discipline, and consistency, and leverage proven strategies. A trading plan should resemble a business plan and include the following:
- The time required to spend on your trading
- Your trading goals and targets
- Your risk tolerance and risk management rules
- Available capital for trading
- Specific markets you wish to trade
- The trading strategies you’ll use
- Your motivation for trading
Creating a trading plan is crucial to profiting consistently. Successful traders understand that trading plans are crucial to profiting consistently.
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Learn the Basics
Learn the basics of the market the trader plans to trade in. For example, if the trader is interested in trading stocks then understanding the stock market is important. It includes:
- Understand what stocks are and what they represent
- How to buy and sell stocks?
- Different types of stocks available
- What are the risks of investing?
Similarly, if the trader is interested in the forex market he/she should understand the basics of it which include:
- Which currency pair to trade?
- How to read currency pairs?
- How and when to buy or sell in the Forex market?
- What are the different ways they can trade currency? Forex markets exist as spot (cash) and derivatives markets, offering forwards, futures, options, and currency swaps
If the trader is interested in the crypto market, then he or she should be aware of the following basic market dynamics:
- How the price of crypto is determined?
- How is cryptocurrency created?
- Which cryptocurrency is safe to invest in?
- Volatility of each cryptocurrency market
Make use of Stop Loss
New traders are unaware of stop losses or don’t consider them worth using. Stop/losses allow you to set the price at which an open trade will automatically close – for when it is profit and in loss. This is very handy for locking in profit when your trade hits your pre-defined upper limit or cutting your losses short if a trade looks like it is heading south.
They are different from stop-limit orders, which are orders to buy or sell at a specific price once the security’s price reaches a certain stop price. Stop-limit orders may not get executed whereas a stop-loss order will always be executed.
Here is how to do it:
- Fix the stop loss price. There is no fixed price at which a Stop Loss can be set. It differs across stocks.
- Use a trailing stop loss to protect profits.
- Use bracket orders to protect your profits and minimize your losses.
- You can use the stop-loss in both ways, which means you use the stop-loss in either a long or short position where you can place an opposite order to mitigate risks.
- While setting up the trade, you can place the stop-loss at the right support or resistance levels on the stock charts.
Take your Time selecting a Broker
There are many brokers available offering multiple services and claiming to provide attractive profits. Don’t get intimidated and don’t jump on with the first broker you see. The trader will be trusting his money and personal details with the broker. They must look into them.
The choice of broker should reflect the trader’s investment style—whether you lean toward active trading or a more passive, buy-and-hold approach. Also, always make sure your broker is fully licensed by state regulatory authorities and FINRA and registered (individually or via their firm) with the SEC.
Some key considerations while choosing a broker:
- Fees – it is important to understand the fee structure of each broker. Each broker has a different fee structure
- Platform features – The platform features offered by a broker can vary widely. Some brokers offer basic educational resources, comprehensive glossaries, easy access to support staff, and the ability to place practice trades before you start playing with real money. Others offer more high-level education and opinion-based resources authored by professional investors and analysts, as well as a good selection of fundamental and technical data.
- Security – Security is a critical consideration when choosing a broker. You want to ensure that your personal information and investment portfolio are protected from cyber threats.
- Customer support – It’s important to choose a broker that offers excellent customer support. You want to be able to get help when you need it, whether it’s through phone, email, or live chat.
- Investment options – Different brokers offer different investment options. Some brokers specialize in certain types of investments, such as stocks or bonds, while others offer a wider range of investment options
Think about Money Management and Risk Management both
The classic mistake most new traders make is to focus all their efforts on making money. While this is obviously important, you should also pay great attention to keeping the money you already have.
Risk management is the process of identifying, assessing, and prioritizing risks to minimize, monitor, and control the probability or impact of unfortunate events. It is a crucial aspect of trading that helps traders cut down losses and protect their accounts from losing all of their money. On the other hand, money management refers to a trader’s overall strategy in allocating the capital they have available. It determines how much money to place in a trade, decides how to scale the position size up or down, and sets long-term trading goals.
Here is how to do both:
- Trading with more conservative styles and methods.
- Make sure your gains from winning trades are larger than your losses from losing trades.
- Increasing the odds of favorable risk-to-reward ratios.
- Preventing a fatal loss from one or a series of losing trades from which you’re unlikely to recover without adding funds.
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Stay Updated with the Financial News
All financial markets move on the news – be it shares, bonds, currency, or crypto. Breaking stories around one country’s economy or business sector can lead to financial markets reacting in turn. As a trader, it is key to understand this so you can factor in how the latest news could affect your open positions or the opportunities that may come along.
Here is how you can do it:
- Follow financial news websites like Forbes, Bloomberg, and Reuters
- Subscribe to financial newsletters such as Morning Brew
- Listen to financial podcasts like the Fast Money Podcast
- Hire a financial advisor that fits your needs
Don’t Switch Strategies
There are many strategies available that traders can follow. Finding the one strategy is the key to success in the trading world. A good tip is to stick with one strategy for a decent amount of time, rather than changing every time you lose a trade or have a poor run. To get the edge a good strategy will bring, you have to give it time to play out. It is usually best to run a strategy for at least 1 month before reviewing the results it has produced. Naturally, if every trade for that period is lost, you would then be perfectly within your rights to try another.
Pick a Trading Style
Trading style refers to the approach that a trader takes to decide when and how to trade. There are several trading styles, each with its own set of characteristics and strategies. Some of the most common trading styles include:
- Day Trading: Day traders buy and sell securities within the same trading day, aiming to profit from short-term price fluctuations. They typically use technical analysis and leverage to make quick trades.
- Swing Trading: Swing traders hold positions for a few days to a few weeks, aiming to profit from medium-term price movements. They use both technical and fundamental analysis to identify potential trades.
- Position Trading: Position traders hold positions for weeks, months, or even years, aiming to profit from long-term price trends. They use fundamental analysis to identify undervalued securities.
- Scalping: Scalpers make multiple trades throughout the day, aiming to profit from small price movements. They typically use technical analysis and leverage to make quick trades.
- Algorithmic Trading: Algorithmic traders use computer programs to execute trades automatically based on pre-defined rules. They typically use technical analysis and backtesting to develop their trading algorithms.
- High-Frequency Trading: High-frequency traders use computer algorithms to execute trades at high speeds, aiming to profit from small price movements. They typically use technical analysis and leverage to make quick trades.
- Positional Trading: Positional traders hold positions for weeks, months, or even years, aiming to profit from long-term price trends. They use fundamental analysis to identify undervalued securities.
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Don’t Get Emotional
It’s essential to keep your emotions in check while trading to avoid making impulsive decisions that could lead to significant capital loss. Here are some tips to help you manage your emotions while trading:
- Don’t act on anger – When you’re angry, wait until reason takes hold before making any decisions.
- Follow each trade with a break – Trading goes on at a rapid pace, so don’t get caught up in the action. Take a moment to think about something else, and then come back and deliberate. Now look at your trading journal to get the next idea.
- Set a fixed point at which you stop. After three, four, five, or whatever number you choose, stop for a good long break. It’s when one trade follows another that most mistakes happen. Consult your trading journal and review your strategy.
- Keep your mind on the plan. Don’t let the results of a few trades change your overall strategy and approach. Stick to what you have learned and what you have planned.
- Consult your trading journal – Reviewing your trading journal can help you get back on track.
- Manage your stops carefully. A cautious approach to stops and limits will keep you from making rash decisions. It hurts to get a trade stopped, but over time you will save money on losses. Your trading journal can give you useful comparisons on levels for stops.
- Control your risk – Establishing a risk management plan can help you avoid making impulsive decisions.
- Don’t give up. There comes a point in every trader’s life when it just doesn’t seem worth it anymore. Don’t let yourself be intimidated. Trading is tough, but you can win.
Remember, it’s essential to align your trades with your goals and trade according to the goal you wish to achieve. Emotional trading can make you aloof towards the larger picture and take a short-term view, which can prove detrimental to wealth creation. By keeping your emotions in check, you can navigate the market better, understand the impact of various market forces, and develop a solid strategy to augment your gains further.
Set a Space for Trading
Whether you do it on the side on top of a normal job or trade full-time from home, it is key to have everything in place to make it work. One of the most important things is to set up a dedicated space in your house where you will trade.
Setting up a space like this will help you take trading more seriously and have the peace needed to make rational decisions.
Trading is both science and art. It’s a science because you need to follow certain rules to make it to the top. It’s art because markets keep changing, and rules that worked yesterday don’t have to work tomorrow.
Emotional control, sticking to trading plans, efficiently managing risks, and becoming an expert in a specific strategy are necessary steps in becoming a successful and profitable trade.Back