Know Your Markets

A guy new to trading has been paper trading for a year now and
is still afraid to make a real trade. He just watches the markets all
day long making mental trades. Last week, he lost his mind.
Just like you need to know yourself, you also need to know what you
are trading. This includes the individual stocks or commodities you
may trade, as well as the overall markets in general. It means knowing
everything you can learn about them to make you a more efficient trader in
those markets. You should get to know every little nuance of what makes
a stock tick, how much it could move, how liquid it is, the risks involved
trading it, and so on. These are just a few things that can affect a stock,
there are a lot more factors I’ll discuss later. These are things you should
know before entering into a position, so that you can control your risk. You
also should know the macro picture of what you are trading. You should
be aware of what type of market you’re in; is it choppy, trending, near a
reversal or support point, and so on? If a market is on a good run, find out
why, it can help you determine how to trade it and when to maybe ease up.


Just looking at a five-minute chart of a stock will not help you much, but if
you know the overall picture of the market you’ll fare much better.