4 practices to master in your first year of trading

If you’re new, or newish, to trading, I know it can feel overwhelming.

Back in the dark ages, when I started out, finding information could be tricky. You might have to pay for courses, or plough through heavy books.

These days, the volume of information being fired at us is enormous. And, once it’s in your search engine algorithm, you’ll find no shortage of people telling you exactly what you need to work on … reading price action, building discipline, and (more often than not) paying out a lot of cash …

But here I want to focus on the core skills you need. These won’t ensure you fast cash in your first year, but they will ensure you a lengthy trading career which will allow you to build real wealth.

1 • Demo trading

A demo account looks much the same as a live account, but will be loaded with ‘play’ money. This allows traders to practice without losing any real cash.

Demo trading is an essential part of becoming a successful trader. But I want to address the naysayers here. Some people will tell you that it’s a waste of time, because you don’t experience the emotions of winning and losing money.

But that’s exactly why it’s so valuable.

Demo trading will enable you to get used to the practicalities of trading – placing trades, reading charts, managing risk. It’s a great place to make all those beginner mistakes, like getting decimal points in the wrong place, or typing in a £50 stake, when you meant to take a £50 risk.

Demo trading isn’t just for beginners – it’s also where you’ll test out new ideas throughout your trading career.

So, if you haven’t already, get your demo account up and running.

But – this is important – don’t ‘play’ in your demo account. Treat those funds with respect and use it to model real trading. That’s how you’ll genuinely learn from it.

2 • Journal keeping

Without solid journal keeping, you will never get successful at trading.

Yes, you might have some good runs … but if you aren’t measuring what’s working and what’s not, you won’t be improving.

If you rely on the profit/loss figure on your trading account as a measure of success, you’ll very quickly pick up bad habits, and ultimately will throw in the towel when you hit a losing run.

Keep a trading journal doesn’t need to be hard work – we’re not writing War and Peace here.

Download my template here to get started:

3 • Risk management

First up, ensure you always know exactly what the risk on any position you take is, and know how to calculate this as a percentage of your trading fund.

So, if you’re trading with a fund of £1,000, and are risking 2% of your fund per trade (a sensible approach), then your risk per trade should be £20.

That risk level then needs to be divided by the distance to your stop level to calculate your stake.

So, if your stop distance is 20 points, your stake will be £1.

That means you’re risking £1 per point. If the price moves against you by 20 points, you’ll be £20 down and will have lost 2% of your fund.

You should also be aware of the risk of slippage – this happens when positions close at a worse (sometimes better!) price than you expected due to fast-moving markets. As a result, you may lose more than you expected. As long as you’re trading major markets (more about markets in a moment), slippage is rarely a problem.

Risk management is also about developing some self-understanding. This will unfold as you move into live trading. Start small and be aware of how you deal with winners and losers. If you’re struggling with the stress of losing trades, consider reducing your stakes or looking for a trading strategy that gives a smoother ride.

4 • Get familiar with instruments

When you open up your trading platform, you’ll be presented by a wide range of markets you can access: from global indices, stocks and precious metals, to coffee, currencies and cryptos.

There’s a lot going on in the global financial markets! And I’m not suggesting for a minute that you get familiar with all of these.

While it’s tempting to explore exotic and volatile markets, be aware that it’s easier to lose to money in these areas, and trading costs can be high. As a novice, stick with large, liquid markets – these will have an inbuilt level of stability and (crucially) are cheap to trade. I’m talking about major global indices, like Wall Street, the FTSE, the DAX, and major currency pairs, like EURUSD, GBPUSD, USDJPY.

Find two or three markets to start off with, and look at how they move during the day … When are the busy times? What is a normal range? What is the spread cost to trade them? What data announcements could affect them?

Building your trading style

As your confidence in accessing the markets grows, you’ll find the trading style that suits you.

This will be affected by the time of day you want to trade, how much time you have available, what size of bank you’re trading with, and what kind of risk you’re prepared to take with that money.

Don’t rush, and don’t force yourself into a trading ‘persona’ that doesn’t fit. Sure, there are plenty of times when trading the markets will feel uncomfortable … but ultimately we’re in this for the benefits it can bring to our lives. Trading not only has the power to bring you financial rewards – it’s an intellectual and psychological challenge too, which can be just as beneficial.