*The easiest way to get involved in trading the financial markets*
In this blog post I am going to share with you my opinion on the easiest way to start actively trading the financial markets. I am often contacted by new traders who are wanting to get involved in the markets and unfortunately it is not an easy question to answer. There is so much trading and finance content out there on the internet now that someone wanting to get involved in trading their own capital on the financial markets might quickly become overwhelmed and give up. I suppose this is partly the reason why I created this blog.
Before we begin, I think it is important to note that the information in this blog post is NOT financial or investment advice. You should not be trading or speculating on financial markets with money that you cannot afford to lose. This is the number 1 rule. Trading the financial markets IS and ALWAYS will be difficult but it can be very rewarding both financially and psychologically. There is a certain level of satisfaction gained from knowing you are 100% responsible for your success and/or failure when trading the financial markets and it brings out our primeval instincts of survival and winning.
Let’s get right in to it and run through the basic steps needed to get the new/inexperienced trader or investor actively trading the financial markets.
Before you can buy, sell, hedge or invest in anything, you will need to gain access to pricing of the financial instruments you want to trade and an account with a broker to place your trades. As with all parts of the trading sector, there are hundreds of charting software platforms and brokerages to choose from, some of them significantly better than others.
“Forex” and “binary options” broker scams are very common place now so be careful when selecting the company that you plan on depositing your hard earned money with.
As a basic rule of thumb you want to make sure of the following THREE things:
- The broker is fully regulated by the relevant authority in the country they operate.
- The broker holds your funds in segregated accounts (separate to their own funds).
- The broker uses an STP (straight through processing) model.
The need for regulation is self explanatory, if the broker is not regulated then you are not safe and using them to hold potentially large amounts of your capital would be a big risk. Account segregation is also very important and is an extra layer of protection against broker risk. If your margin on account is held in segregated accounts then even if the brokerage fails in the future, they cannot use your capital to pay off their business liabilities. The STP business model means the broker places your trades with outside liquidity. If the broker you use is operating a B-Book then they will have an extreme conflict of interest with your long term success because they will be on the opposite side of your trades. They will profit when you lose and vice versa.
Most brokerages will either link to a trading platform for you to analyse price charts and do your technical analysis. Metatrader 4 is one of the most widely used trading platforms and 90% of retail CFD/Spreadbetting brokers can be used through it.
Alternatively you can use a 3rd party charting software for your technical and fundamental trading analysis. I use the TradingView platform because it is one of the easiest to use platforms with a very high level of functionality. This is not a necessity and is an unnecessary luxury cost because you will still need to use a broker and their platform to place trades.
Once you have the ability to access the markets and buy and sell assets and securities, you are ready to move on to the next stage. Up to this point you should have invested only time and zero money in getting set up.
Education and Learning.
Now it’s time for you to get out there and expand your knowledge in to the world of trading and finance. Much like brokerages, there is a lot of rubbish content out there along with nuggets of great advice and education. It is down to you to sift through everything and find what is right for you.
I recommend starting with my blog site. Go through all of the previous content from the beginning and I guarantee that you will learn something new that will help you to avoid making an unnecessary mistake. This blog post will be number 173 when published.
Another infinitely valuable trading educational resource is the BabyPips forex education programme. Like my blog site, it is completely free of charge and is extremely comprehensive covering all areas of retail trading.
Along side reading books and online material, start to actively watch the movements of the markets and see how global events move different instruments. This will help you to know what might effect your trade positions when you begin trading.
There is so much free educational content available online that new traders do not need to buy expensive trading courses if they cannot afford to. A lot of what I learnt was through trial and error and free online material. I have never purchased a trading course.
Trading strategy for beginners.
This is probably the most important part of this blog, so pay attention. There are thousands of strategies being used to trade the financial markets and whether they are all profitable or not is an open discussion. I believe a lot of strategies are profitable in one way or another but it is not possible for every person to be profitable when discretion is involved in analysis, you must find your own way.
My first piece of advice is to keep it simple… as always!
I personally use multiple strategies when trading the financial markets, all with various degrees of technical and fundamental analysis and different timeframes and duration. Using multiple technical indicators, multi timeframe analysis, chart patterns and complex mechanical strategies is perfectly acceptable and can prove to be very profitable but, my honest opinion is that, they are not suitable for new traders.
Here are my 3 top tips for new traders when completing your technical analysis.
- Buy Low, Sell High. This may sounds obvious but it is true. If you are trading support and resistance zones or trading a trending market, this rule remains the same. Dont sell after a bearish move has happened, don’t buy after price has already made new highs. FOMO (fear of missing out) is a common reason why new/inexperienced traders lose money.
- Trade with the trend. It is much easier and safer to find an established trend and trade with the market bias. Not only is the probability of a successful trade increased but you will also find that the potential for profit is greater.
- Start big! Begin with higher timeframe charts – weekly and daily. Keep your stop losses big, don’t be too aggressive. This will give you more room for manoeuvre when entering trades so you don’t have to be as accurate with your trade entries. Your chances of entering successful trades will be increased.
Let’s look at some examples of very simple but effective, high timeframe trend following trades.
Trade Example 1 – GBPUSD Long Trade
- Direction: Buy
- Duration: 72 days
- Stop Loss: 160 pips
- Final Profit: 662 pips
- Reward:Risk: 4.14R
The chart above shows a good example of a basic trend following trade utilising simple trend analysis, EMA alignment and a trendline. Combining all 3 of these points of analysis produces an effective long position trade entry with an acceptable reward:risk ratio. The trade shown on the chart meets all 3 of the “top tips” I listed previously.
- Buying Low. This is a bullish trend, and the trade entry is at a higher low after price has sold off from making a higher high. It is not an example of buying at any price highs or in the middle of a bullish run.
- Trading with the trend. This is a bullish trend and the trade is a long position.
- Starting big. This is a daily timeframe trend so the stop loss can be large (160 pips) with plenty of room for movement.
Even with a conservative stop loss of 160 pips, this trade example had a reward:risk ratio of more than 4.14R.
A basic method of measuring risk and performance.
R represents return as a ratio of risk. A reward:risk ratio of 4.14R means that your potential profit was 4.14 times the size of your risk. In the GBPUSD example trade shown above, the stop loss (risk ) was 160 pips and the profit when trade was closed was 662 pips. Profit / Risk (662/160) = 4.14.
If you purchased 1 standard lot (100,000 contracts) of GBPUSD then you would have risked £1,320 (£8.25 per pip x 160) with a stop loss placed 160 pips below your entry price. Therefore using a reward:risk ratio of 4.14R your total profit would have been £5,464.80.
Using R to measure the potential of both new trades and closed trades is a very simple yet effective way to measure profitability. Having a larger average reward:risk ratio from trades means you can afford to win less trades and still be profitable.
Let’s look at the 3 points of technical analysis used for this GBPUSD long trade and I will explain how to do it for yourselves.
This is the easiest part and should be kept simple. Clear all indicators off of the price chart you are looking at and look for how price is moving. Find the waves and table the highs and the lows. I have labelled this trade example with the higher highs and higher lows of the bullish trend for your reference.
- Higher highs and higher lows = bullish. Only look to enter long positions.
- Lower lows and lower highs = bearish. Only look to enter short positions.
This way you will always be following my “top tips” and trading with the trend and buying low/selling high.
Important! This process should be quick and easy! If you are struggling to identify the predominant trend then the likelihood is that price action is choppy and the market structure is not in a trending phase. If that is the case, close this price chart and look at another financial instrument.
Trendlines can be drawn in many different ways and that is why they are considered to be very subjective. It is up to you to find your own way of drawing trendlines depending on how you like to analyse the markets.
I will show you a method that I have found to be very easy and effective. It eliminates the potential for large market volatility to effect the accuracy of a trendline by smoothing the drawing process.
By converting the chart from candlesticks to line chart you smooth out price action and remove any extreme price wicks. This makes identifying trends easier but it also makes it easier to draw on a trendline. Simply draw your trendline across the 2 predominant higher lows (for a bullish trend) and then convert it back to price candlestick format to continue with your analysis and trade entry.
As you can see on the chart above, the trendline and price react nicely. It can be used to find your next potential higher low and trendline bounce trade entry.
EMA stands for exponential moving average. These are commonly used in technical analysis alongside the standard moving average (MA). I prefer to use EMA’s in my trading because the calculation applies weighting to more recent pricing to produce a slightly more accurate moving average.
The process of using the alignment of EMA’s to determine a trend direction is simple. By using 2 different length period EMA’s (I like to use 50 and 200) then you can support a directional bias depending on whether the alignment of the EMA’s agree. If the shorter period EMA is above the longer period EMA then price is considered to be bullish and the opposite is bearish.
- 50EMA above 200EMA = bullish trend bias.
- 50EMA below 200EMA = bearish trend bias.
That is all you need to know when using this tool for trend analysis. I believe EMA alignment works particularly well for higher timeframe, longer duration price movements like the trades I am showing you in this blog post. You will notice on this GBPUSD long trade example that the 50EMA (black line) is above the 200EMA (orange line) at the point the trade entry takes place.
Trade Example 2 – EURUSD Short Trade
- Direction: Sell
- Duration: 15 days
- Stop Loss: 120 pips
- Final Profit: 350 pips
- Reward:Risk: 2.92R
Using the same 3 types of technical analysis as the first trade example, you could have also found a very similar set up on the EURUSD FX currency pair but for a short trade this time.
The first step is to identify the prevailing trend. Quite clearly on this example it is bearish. The large drop in price which lead to consolidation and lower lows and lower highs being made. This also coincides with the EMA alignment becoming bearish which I have circled on the chart.
Once again, converting the chart to a line format and drawing the trendline across the highs is very easy. This then gives you the 3 points of analysis to look for a short trade entry to be trading with the trend.
Shorting EURUSD on the next lower high and rejection of the bearish trendline would have proved profitable and netted almost 3R in approximately 2 weeks. Remember, new traders should NOT BE looking to enter aggressive and risky trades for inflated reward:risk ratios. This method of trading is for getting used to trading the financial markets and returning small yet consistent profits.
Trade Example 3 – FTSE 100 Long Trade
- Direction: Buy
- DuratioN: 27 days
- Stop Loss: 284 points
- Final Profit: 855 points
- Reward:Risk: 3R
Once again, this trade example utilises the 3 main points of analysis I have shown you in this blog post. Trend analysis, EMA alignment and a supporting trendline. This is all you need to find a basic trend following trade entry. If you keep your stop loss placed conservatively below your long trade entry and don’t get greedy with your profit targets, then this method should suffice in getting you actively involved in trading the financial markets.
The chart above shows you how, once again, using the line chart to place a trendline can make things much simpler and easier. Remove price wicks from the image and smooth out price action.
As you can see, in all of the trade examples above I have kept things very simple. I have used basic price action and common sense to determine the prominent trend direction before combining the use EMA’s and trendline tool to further increase the chances of success. I have exited trades once new higher highs or lower lows (depending on trade direction) were made and price resistance/support began to form. This is a basic form of trade management.
In my opinion, this is all you need to start finding good simple and effective trade entries on the higher timeframes. This is not complicated, it should not be confusing and this style of analysis will help you with a starting point for you to then develop your skills as a trader.
When starting out, you do not need to have super accurate trade entries with no drawdown and very tight stop losses. This is aggressive trading, it takes practice to trade like that and even then I do not advise it because it is such high risk. There is nothing wrong with small amounts of drawdown when trading if it remains within your risk tolerances. If you go in to trading expecting to pick perfect trade entries every time then you will lose. Trading is not an exact science. Time in the markets is more important than timing the markets.
Focus on picking good quality trades, being able to identify trends and trading them effectively.
Okay, so I should hope you now have some inspiration to start looking at getting actively involved in trading the financial markets. I want this blog post to give you somewhere to start, a base foundation on which you can build on with more detailed analysis and ultimately find your own trading strategies. Progression is key. Once you master the ability to find trending markets and simple yet effective trade entries then you can start to improve your returns.
Improving your confidence when trading the financial markets is the key to success. It will help you control your trading psychology and allow you to enter trades with conviction and not doubt. This can only be achieved through spending time in the markets, trading and gaining confidence in your abilities.
The next step in progression is to improve your profitability. Once you have mastered the higher timeframe trades with average reward:risk ratios and a strong win ratio, then you can look at going to the lower timeframe charts. Increasing trade frequency and increasing the accuracy of your entries will lead to increased profitability if you can maintain a good trade win rate.
If you do not have access to large trading capital or your appetite for risk is no high enough to warrant putting your own capital on the line then a trader funding programme could be a good step in your progression. Trading funding programmes such as FTMO are an excellent way for profitable traders to gain access to significant amounts of trading capital with very limited exposure.
I have written this “guide” to assist new traders in getting access to the financial markets. It is not a definite list of instructions, it will not make you a great trader and you will still be required to put in the time and effort to expand your knowledge and develop a trading strategy that works for you. What this blog post will do is give you a place to start actively trading the financial markets.
What is NOT discussed in this blog post are risk management and trade management techniques. My purpose for this blog post is to give new traders a place to start and to help them take that first step in to actively trading the financial markets. If you are wanting to learn risk management and trade management techniques then these feature heavily in previous blog posts which you can find by clicking on the link below and reading through my other content.
As always, remember to keep things simple. Buying low and selling high will give you the best chances of success and trading with trend assists this.
All my technical analysis is done using the TradingView platform. You can get access via the link below.
My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.
FTMO Trader Funding Programme.
Thanks for reading and please don’t forget to LIKE, SHARE and FOLLOW my blog to stay up to date with the latest market analysis and trading education posts.
DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.