Trading - Learning the Stock Market

It's a natural inclination to get excited about learning to trade the stock market and to want to jump right in and start making trades. After all, you've filled your brain with potential candidates from watching hours of cable television programs that feature the "hottest" stocks on the board. You're chomping at the bit to get started, just like a thoroughbred racehorse is before the start of the Kentucky Derby.

But here's one major piece of advice you need to heed: Stop.

Resist the temptation to jump into the market without proper preparation and education. Unless you know how to find the candidates, how to analyze the candidate, place the trade and manage the trade, you are doomed to fail. Sure, you might get lucky once or twice, but in the long-run you'll fail because you don't have the ability needed to succeed. That's where education and practice trading becomes important.

Smart traders know the importance of using non-funded trades, also known as paper trades or virtual trades, to get prepared to trade the stock market. Just like a baseball player needs to take batting practice prior to the game, a trader plenty of practice before attempting to take a piece of Wall Street home as a souvenir.

Here's the advantage you derive from paper trading:

• You learn how to use the online brokerage account for which you registered. (Tiger Woods doesn't put a golf club into his bag before he tries it out, and neither should you trade without testing the platform.) If you don't know how to use the brokerage platform properly, you could easily make a mistake when it comes time to enter or exit the trade. You don't want to be buying a call when you want to be buying a put!
• You'll learn more about how to enter and exit a trade. Through proper paper trading you'll be able to see the right places to get into a transaction and the most profitable places to exit. And, when you practice, it doesn't cost you money to be wrong.
• You can test the various trading strategies and see which one fits your personality and matches your tolerance for pain. If you can't handle the volatility of fast-moving stocks, you might want to stick with credit spreads. But if you feel the need for speed, you might gravitate toward buying calls and puts on fast-movers like Google or Apple. You learn from paper trades.
• While practice trading is important, there's no question that you'll feel different emotions when you enter your first trade. Your heartbeat will increase and your palms are liable to be clammy, but those are natural reactions. Still, obtaining the education that will enable you to conduct the trades on paper will lessen the effects of being overwhelmed by the occasion.