Why Trading Education is a Must Before Venturing into Equity Markets?

Mr. Hitesh Chotalia, Head of Education, FinLearn Academy FinLearn Academy is a trading and investment education initiative offered via online and offline mode.

An educated trader has more chances of making consistent money and managing risk better than an uneducated trader or a novice trader. Like any other skill based profession, where you acquire skill by learning in a formal manner and then continuously educated oneself to keep him/her updated.New traders taking their first steps towards learning the basics of stock trading should have access to multiple sources of quality education. Just like learning to drive a car, trial and error coupled with the ability to keep pressing forth will eventually lead to success.

"New traders taking their first steps towards learning the basics of stock trading should have access to multiple sources of quality education"

One great advantage of stock trading lies in the fact that the trading business itself lasts a lifetime.

A trader needs to be educated on knowing:

. Trading Style: There are various styles of trading like(a)Day Trading(b) Swing Trading(c)Positional Trading and(d) Long Term. If you are looking for cash flow then one should select day and swing trading, and for wealth generation one should look at selecting positional or long term. Each style of trading has its advantages and disadvantages. Day trading and swing trading requires considerable amount of time dedicated to trading business, if time is a constraint then one should look for other style of trading. Day trading and swing allows you to take leverage since relatively small capital is required to initially start the business. Positional and long term requires larger capital as leverage is not recommended. When trading for cash flow
the profit per trade and risk is small compared to long term trading.

. Trade Plan: Every business has a business plan so how can trading be different. A detailed trading plan should be prepared before venturing into trading business. A trade plan provides same level of discipline and detailed attention to your trading business as you give to any business you manage. By documenting a trade plan, you know what works and how to avoid costly mistakes in your trading Ask any successful trader who consistently makes money on a consistent basis, his answer will be he has a trade plan and trades according to the trade plan.

. Personnel & Financial Goals: Define your goals and reason for trading. In business you achieve success if you have a set of clearly defined goals. Have a clear picture of what your overall personal and financial goals are and link there to your trading plan.

. Discipline: A key element to success in trading is discipline. Self-discipline is important in trading business to control your actions.

. Measuring Success: Capital allocation, reward to risk ratio, setup up cost of your trading business, trading journal, your initial roadmap, scaling your trading business are factors you need to learn and understand.

. Trading Journal: Keeping a trading journal is an effective way to record your trading patterns and other factors relevant to your trading. Review both your open and closed trades.

. Money Management: Determine the amount of capital you are prepared to risk on each trade as a percentage of your trading account capital.

. Trading Rules:Scanning for your trading opportunities, selecting an asset class to trade, entry rules and exit rules.

. Trading Psychology: The psychology aspect of trading is very important. Traders often trade in and out of stocks at short notice taking quick decisions. To accomplish this, they need certain presence of mind. Discipline is required so they will stick with previously established trading plan and know when to book profits and losses. Emotions should not get in the way. Trading should be rule based and not emotionally driven. Emotionless trading adopts a systematized trading approach, continuous learning and evaluation. Mental toughness highs and lows are a part of trading. Learn to handle wins as well as losses.Perfectionist approach eliminate perfectionist expectations at the start of your trading day.Learn to overcome Anchoring bias and Confirmation bias. Physical and mental fatigue has a significant impact on financial decision making. Adopt a practical approach to manage the same. Specific mind training techniques that have a strong impact on attention, self-control, decision making and regulation of emotions.

. Simulator - Paper Trading: Virtual stock trading is a simulated trading process in which traders can practice trading without committing money. In a simulated environment a trader can test his strategies, mental approach and understand the nitty gritty of trading without actually losing money.