Answer These 5 Questions Before You Start Trading

When I first started helping other people improve their trading (many years ago now), the people who came to me were already experienced traders. In fact, most of my customers have been trading between 3 and 10 years. Lately, however, I'm seeing more and more people who have never traded on their own (i.e., without the full services of a broker). They see the value in being in the market, and they are ready to take the reins on their account, but they just aren't sure how or where to start. If this sounds like you, you'll want to read this post. This will help you figure out what you need to do before you start putting your hard-earned cash at risk.

Key takeaways

Pick one market and stay with it. Trading several instruments at once is one of the most common early mistakes.
Decide your trading style before your platform — how fast you want to trade, and how much of the day you actually have.
The platform is a separate decision from the broker, and it is where most new traders get confused.
Write the plan down before any money is at risk. Answering the first three questions is not the same as being ready.
Check the computer last, but do check it. A machine that cannot keep up turns a good plan into missed fills.

Get These 5 Things Straight Before You Start

Regardless of your past experience with trading, there are 5 questions you need to consider right up front.

Which market type or instrument will I trade?
What is my preferred trading style?
Which software platform will be best for me to trade on?
What's going to be my trading strategy?
Is my current computer hardware sufficient for the demands of trading?

Before we look at these questions, I should disclose that I personally trade only stocks, and only on the long side (i.e., only when I think the price will go up). Although my answers are fairly universal to any type of trading, just know that I’m a stock trader. I view the world through that lens.

QUESTION 1: Which Market Type?

One of the biggest mistakes I see traders making is trading multiple instruments. A key to trading success is to focus your trading on one market type. In other words, pick equity stocks, or Forex, or options, or some other instrument type, but pick only one. Otherwise, it will be nearly impossible to reach expert level. And to really succeed in a market, you need to become an expert. New traders often buy into the notion that trading is a way to get rick quick. That's a myth. And pursuing a fast buck will just allow you to be easy prey for every new sales pitch that comes your way. Getting distracted by every new fad or great-sounding trading alternative just diffuses your mental energy, keeps you confused, and prevents you from making real progress.

QUESTION 2: What's Your Trading Style?

By trading style, I mean do you prefer a slow and steady pace, or do you need more action? And do you have other things going on in your life, like a job or time-consuming hobby or care-giver responsibilities, that prevent you from giving trading your full attention all day long? If you like trading in the fast lane, you'll find that with day trading the stock market, options, Forex, or futures. If you want or need to be in the slower lane, you'll be better off planning to swing trade in the stock market.

QUESTION 3: Which Software Platform?

This question seems to be the area of greatest confusion for new traders. Most new traders understand what a broker and brokerage account are, but what's a platform? A brokerage account is like a bank—it's the entity that holds your money. When you open an account for trading, you are opening that account with a brokerage. The brokerage has seats on one or more exchanges that authorize the brokerage to execute trades. Basically, the platform replaces your broker. A human broker takes information about what you want to trade and executes trades for you. A trading platform is an online interface to do the same. Online brokerage houses have their own trading platforms. But this is where it gets confusing. You don't necessarily have to use your brokerage house's platform to execute your trades. In many cases, you can find competing platforms (software) that will still allow you to trade with money in your existing brokerage account. So which platform should you choose? One of the biggest mistakes I see is people investing too much time in a software platform that does not help them to be profitable. My best advice in this area is to pick the one that is simplest and easiest use. Complexity is the enemy of execution. If you’re distracted or confused you won't be a profitable trader. Personally, I use the TradeStation platform for trading stocks. I find the software to be very easy and simple to use. I have my brokerage account there, as well. It's like one-stop shopping. I’m all about making things easy and simple. TradeStation feels easy to me, start to finish.

QUESTION 4: What's Your Plan?

It's easy to think that once the first 3 questions are answered, you're good to go. And you maybe indeed be ready to place real trades. But you're not yet ready to succeed. Most people’s plan is to make as much money as possible as fast as possible. I hear you, we all want that. However, that "plan" isn't really an actionable strategy. Traders need to have a trading plan that acts as a rule set for when the stakes are high. If you don’t have one, you’ll never be profitable. Sure, you may have some accidental success and even make a profit. Let's just call that what it is: a windfall. It’s not repeatable for long-term gains. If you want to keep and make enough money to continue trading, then you need to have a plan. Any good trading plan has clear rules for entries, exits, and stop losses. When you have a good trading system, you will celebrate both wins and losses as long as you've stuck to the rules. Sticking to the plan is what really matters to long-term success. I’ve been trading for close to 30 years at this point. I’ve made tons of mistakes. And I can tell you, if you don’t follow this one piece of advice, you won’t be a trader for very long. It’s really sickening how many people save and save their money to become a trader, only to lose it in six months to a year. Don’t be that person!

QUESTION 5: Is Your Computer Good Enough?

The final step before you begin trading with real money is to make sure your current computer is optimized for trading. A Dell or HP laptop you can buy at a big-box retailer isn't going to cut it, even if it's brand new. Most people don’t realize their existing computer won’t work for full-time active trading until they experience "the blue screen of death" or suffer a trading loss due to major slippage in a trading order. Answering trader's questions about how to optimize their computer for trading is what inspired me to start my business, EZ Trading Computers. I’ve written a great deal about this already. Briefly, you need to have enough RAM, a fast solid-state hard drive, and one of the fastest processors on the market if you want to trade. On the other hand, high-end graphics cards are a waste of money. I do recommend having at least two monitors, if not more. To find out if your computer will work for trading, take our CPU benchmark test here. To learn how to shop for a trading computer, and avoid wasting thousands of dollars, download our trading computer buyer's guide.

Conclusion

If you've answered all these questions and made your preparations, congratulations! You're about to enter a new and exciting world. May the trend be with you! There are more trading computer tips like this in our buyers guide. Check out our "How To Buy a Trading Computer" e-book. We hope today's Quick Tip helped you. If you found this helpful, you'll want to check out the other computer How-To's I've created on this page. You can always call us if you have questions: 800-387-5250

Frequently Asked Questions

What should I decide before I start trading?

Five things, in order: which market you will trade, what style suits your day, which platform you will use, what your actual plan is, and whether your computer can keep up.

Should I trade more than one market when starting out?

No. Focusing on a single instrument is one of the clearest differences between traders who progress and traders who do not. Each market has its own behavior worth learning properly.

Is the trading platform the same as the broker?

No, and this is the most common confusion. The broker holds your account and executes the trade; the platform is the software you watch and click in. You often have a choice of platform with the same broker.

Do I need a plan before my first trade?

Yes. Answering the first questions tells you what and how you will trade, but not when to enter, when to exit or what you will risk. That is the plan, and it belongs on paper before money does.

Is my current computer good enough to start trading?

Run the free benchmark test and find out. It takes about two minutes. Below 45,000 the machine itself starts costing you fills once several platforms and a live feed are running.