Beginner Trading Questions

The first step is extremely important for your sanity as a trader. You have to set goals that are appropriate to your financial position and your makeup as a person. You need to answer some basic questions such as:

 How much money am I investing?

The total amount you are investing determines how many shares you will buy of each company and how much loss you will be willing take on each trade so it is important to determine the amount. It will vary as you trade so you will need to reassess regularly.

Everybody says that you should not invest what you cannot afford to lose so imagine what your life would be like if you did lose everything. Could you rebuild to invest again? Could you tell those closest to you? 

 How much time will I invest?

How often do you want to watch the market activity? This is not always spoken about but trading and investing can be very taxing of your time if you watch and check in constantly. The way you approach it will vary depending on how often that you can or want to check on it. Most systems will assumes you will watch every day after the trade closes as a minimum.

 What level of return will I aim for?

This will change depending on the overall market cycles and your own personal appetite for risk. If you are happy to aim for 10% per year to out grow your mortgage, then you can choose some very solid slow growing companies that are unlikely to catch you out with a sudden drop in share price, and your safety level will be high. 

If you aim for 200% per year, you will have fewer companies to choose from and could easily lose thousands in sudden moves. Then again you may achieve your goal in which case you will do very well. Your goal return will determine which companies you choose to trade and therefore the risk and return levels expected.

 We recommend starting with a goal of 20% if you are beginning to trade and then as you succeed, you may reassess. It is always tempting to aim higher but until you can practise managing your trades, it can be dangerous.

This is part one of our Beginner series and although short, there is plenty for you to consider here before we go on. Spend time and write down your answers.