Last Updated on:

May 28, 2021

blue and yellow graph on stock market monitor

You’ve probably heard about people making a lot of money trading on the stock market. These people are called “traders” and they make their living buying and selling stocks. 

Their goal is to make money by buying stocks at a low price, selling them at a higher price, and repeating this process over and over again in order to pocket the difference between the buys and sells.

This is the right blog for you if you want to know how to make money trading online. 

When you look in a dictionary for the meaning of trading, it refers to the action of engaging in trade." Trading can apply to the purchase and selling of goods and services as well.

Trading refers to purchasing or selling a financial instrument in the financial market.

I have been involved in the Forex and Cryptocurrency markets for over 4 years now. I have seen people making a living online, people failing online, and I even lost a few bucks of my own until I found the right mentor.

Now that you understand what trading is, it's time for me to explain more about how to get started with it.

What is trading and how it works?

In the financial world, there are different types of markets that you can trade. Each type has its own rules and regulatory constraints.

Whether you're a stock trader or a forex trader, you are an individual doing business on the market of your choice. Every single person is an expert in their own right.

In addition to stock trading, shares, commodities, derivatives and forex markets are part of the financial industry.

What do traders do? Stock traders are called an individual concentrating on buying or selling on the stock market. Forex traders are called an individual concentrating on buying or selling on the forex market or the fx market. 

There is a lot of pressure to focus on one market — the stock market, the forex market, or even your own business.

Be sure to consider all markets, learning about the different markets can help you make better decisions and enhance your financial returns.

start journey

How do I start trading?

To trade on financial instruments, you need a brokerage account. you can easily open an account online

Brokerage firms allow customers to open accounts through online applications or hand-written forms. The process is generally very simple and fast. Brokers vary by the type of instrument you choose to trade.

Once you have decided on the type of commodity to trade, make a choice based on several factors, including customer service and ease of use.

Select the right broker, Based on the financial instruments that you want to exchange, pick the broker.  

Determine what features are important to you, A brokerage account can cost a trader different amounts depending on what features are being used and the broker’s reputation.

Even if you’re new to online trading, you’ll probably need the help of a broker that charges reasonable commissions and offers excellent customer support.

You should also expect decent level of free education provided from the brokers.

You can either choose to spend money on commission-based trading fees, or you can pay a small fee for a full-service fee-charged advisor to help you create and manage your investment portfolios.

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Full-service brokerage accounts are great for clients who want a variety of services from their advisor. They offer full-service options, such as investment planning and other services.

However, brokerage firms like Merrill Lynch and Morgan Stanley charge a regular brokerage commission or a fee for their advisory services.

In return for lower rates, discount brokerage companies such as Charles Schwab, Scottrade, E*Trade, Vanguard, and Fidelity offer more limited services, but they provide customers with a low-cost entry to the market.

For example, many of these discount brokers offer a $500 opening minimum to open a daily taxable brokerage account, and there are expense ratios as little as 0.04% on certain share classes. I myself is use Axitrader & IQ Option to trade on Forex.

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Study chart reading technique: Technical Analysis

It is essential that traders understand how to read the charts. The chart is recording all the buying and selling decisions taken by traders are the result of the transaction of each purchase and sale.

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From the chart pattern itself, an experienced trader can read these patterns and predict a next market action.

Chart patterns emerge when market conditions reach certain thresholds, for example: extreme highs or lows hitting in a row and ensuing strong momentum going into another phase (i.e. a trend).

The chart is available for all financial instruments such as stocks, forex, commodities, and bonds. The data is freely available to the public via Google Finance, Bloomberg, Yahoo Finance, and MSN Money Charts.

candle stick chart

Type of trading chart

1. Line Chart- are the most basic type of chart. This chart represents only a closing price over a period of time.

The line chart is formed by connecting the closing prices over a set time frame. There is no visual information or trading range, it didn't tell much about what happened each day’s activity.

2. Bar Chart – records the price range of each period.

Each bar chart will record the open price at market opening hours, the lowest prices reached during the day and the highest prices reached during the day and the closing price at market close hours.

3. Candlestick Chart - candlestick charts present visual data in a novel way. Candlestick charts visualize market activity using colored candlesticks, and they are often preferred by traders

Candles color the "bodies" with green or red to display whether the stock closes higher or lower than the open. This helps you easily visualize bullish or bearish sentiment.

uptrend market

What is the trend of your market? Spotting trading trends is a critical aspect of successful portfolio management.

To make the most of this, you must understand market conditions and trends in order to arrive at the best trading decisions. In technical analysis, price moves up when it hits a support level and down when it breaks through a resistance level.

Trade it by Spotting Trends, Support, and Resistance.

uptrend chart

If you get out of a trade when the price closes above the resistance area, you are right. Likewise, if you get out of a trade when the price closes below the support area, you are right again. This is true no matter what time frame you're trading on.

Trade it by spotting trends on support and resistance areas in the market. Many traders can see at first glance where the price trend is heading next.

Technical indicators help traders make trading decisions with the flow of market data and the development of market conditions. They are used to forecast buying and selling trends.

Many traders use these tools to help them visualize and predict future trends as well as finding out where bottoms and tops are.

Popular indicators are:

  1. Volume indicators
  2. Moving averages
  3. MACD
  4. Trend lines
  5. Stochastic oscillators

It’s very easy to apply technical analysis tools, but not all tools are needed. The tools are meant to guide you to make better trading decisions depending on your style and preference.

MACD indicator

Moving average convergence/ divergence indicator (Wikipedia)

Technical analysis is great for identifying trends and when patterns emerge. It is also good at spotting support and resistance levels, which can help you profit from trending markets.

At first glance, technical analysis tools seem pretty intimidating.

If you’re new to the market, it can be difficult to figure out which indicators are good and which ones aren’t. While choosing a trading system, it’s important to think about what you use the indicator for.

For example, maybe you want to use an indicator to decide whether or not to enter a trade — and then you go ahead and do so regardless of whether or not it should have been entry.

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The 1-Percent risk rule is a trader's primary rule of thumb for money in safeguard his or her trading account. The 1-Percent risk rule helps you preventing further trading losses when you're going through a bad trading day .

It's a general consensus among most professional traders that keeping less than 1% of their portfolio under "risk" is best.

You should also be aware of how much money you have at your disposal and how much you trade daily. This knowledge will help you make better decisions, monitoring your returns and 

The 1% rule refers to the maximum amount of your capital that you’re allowed to take per any single trade:

Trading account with capital of $10.000

1% Rule

Max loss per trade

$100

Max loss per trade : $10,000 X 1% = $100
Your total loss per trade is not allowed to exceed $100

Why Should You Use the 1% Rule?

The main idea behind the 1% stop loss rule is that losses are to be minimized as you begin trading on larger amounts of money.

When you have been on a losing streak, you will quickly recognize that your losses are unsustainable and that you need to cut your losses short. 

If you let a trade run too far out of hand, you will waste time and money and not learn any new skills from the loss. 1% stop loss rule is a useful tool for new traders to learn to trade small amounts of money with a high probability of success. 

The game is to succeed at the learning stage as a new trader in the trading world, and master the trading skills to become reliable traders.

When you hit a losing streak, don’t be discouraged but instead take on trades that will grow your account—even if those trades have relatively low potential profit.

Price action traders who employ this discipline use a 1% stop loss when they trade too big on a single trade.

safeguard

Using stop loss, once a trade is made, you can put "auto stop losses" in place. This is a feature that can help take the edge off potential losses.

If the price goes south after the order has been placed, an automatic "stop loss" will automatically trigger to protect the seller from further losses.

The stop loss is only triggered when an order triggers, or when there are too many orders within a certain amount of time.

take profit

Use 1:2 risk/reward ratio, the risk/reward ratio is a measure used by an experienced trader to make trade decisions before deciding to enter any trades.

It simply is a process to compare the potential profit & potential profit of every single trade.

When you study the chart, you identify the current price action as a support area. Before place a buy order and hope the prices action is built into continued up-trend movement.

what is price action in trading? Ask yourself what is the "probability" or this price is likely going to bounce off of support and continue to trend up. You don't want end up with 10 trades that go wrong, bounce back to your entry level, and then keep down-trending your position.

By using the 1:2 risk/reward ratio, you can set automatic trigger conditions in your trading plan such as an exit signal when a technical indicator reaches a predetermined threshold.

If the price of a currency pair breaks out of an uptrend trendline or major support level, it can automatically sell off part of its position at your profit target

Is Trading Better than Investing?

Investing is a long-term strategy to create wealth steadily through the acquisition and keeping of a stock portfolio over an extended period of time. 

Trading is a short-term strategy for quickly speculating on gains from fluctuating markets and optimizing regular daily, weekly, or quarterly returns.

Investing

Trading

Hold for Medium to long term (3-10 years)

Trade for Short term (days-weeks)

Focus on company

Focus on Price Movement

Fundamentals analysis

Technical Analysis

10%-25% returns a year

5%-20% returns a month

How do you make money trading?

Making money from trading is all about finding the right stock at the right time. Simply, selecting a share that is undervalued and selling it at a profit.

When you buy or sell shares on the stock exchange you have to complete 3 steps:

  1. Selecting a stock to buy or sell
  2. Buying/selling the stock 
  3. Determining how much you are going to sell your shares 

You always heard about the number one rule in profit from shares or the stock market is “Buy low and sell high”. 

For trading just mean, selecting the stock or share that you think the price is likely to go up. Based on your studies on the price chart, you found out that the price action is favorable to go up.

You buy the share at a lower price and sell it at a higher price at the end of the day.

Using ford example

Share

Share per unit

Number of share

Ford Motor

$6.80

70

Time: 10 am



Total Investment =

$6.80 X 70

= $ 476

Time : 1 pm

Share per unit = $7.30

At 1 pm, Ford's motor share price went up from $6.80 to $7.30.
Total= $7.30 X 70
= $ 511
Profit=$511-$476
= $35


Without calculating the commission charge for buy and sell transactions, you will earn a $35 profit for this particular trade.

Which type of trading is most profitable?

Which type of trading is most profitable? Each of the four types of active traders, applying different methods and amounts of time to profit from the market.

For active trading, there are 4 popular styles: Day trading, position trading, swing trading, and scalping.

The effects of each trading style differ greatly. Day traders tend to utilize macroeconomic events and news stories to their advantage in short-term trades. 

Swing traders may choose to hold positions for longer, as they look for specific price targets.

trader

Day Trading

Traders who follow the Day trading methods will complete a trade on the same day. By not holding an open position overnight, you’ll avoid the uncertainty of the price difference.

You'll be less concerned about the price falling heavily against you by ending all positions at the end of the day.

position trader

Position Trading is the buy-and-hold strategy used by advanced, experienced traders. 

Positional traders take a long or short position based on the prevailing market action. A trend depends on the strength of the action and often lasts several days.

MACD is a technical indicator that visualizes data from a previous time frame and compares it to the current time frame. It helps to predict future price movement by identifying divergences and gaps between two moving averages.

Swing Trading

Swing trading is the phase where you buy or sell a stock when it's in a strong downtrend, but it doesn't break through the resistance level.

Swing trading

Normally swing traders hold a position for 1 hour or until the next day. Holding a position in a trend trades is usually done for 1 – 3 days, but can be as short as 2 hours.

Keep in mind that this is the moment where the momentum shifts for swing traders and they decide whether to hold on to their position and wait for the next move to take place, or whether to sell their position and take profit if they think that the price can't go up anymore.

Scalping

Scalping is short term trading, and the term also refers to a series of trades made with the same goal in mind: profit. This strategy would try to take advantage of any small market movements in an attempt to gain quick profits.

Trading Linear Design

Which type of trading is best?

Each trader develops a style in their approach to making money on trading the market.
You can experiment with different styles of trading employed, financial resources, location, and what time of day you prefer to trade. These factors can all play a role in which markets will be best suited to you.

Before you begin trading, decide your style.

Find out what works and what doesn't work for you as a trader. What type of trading do you want to do, and how much time do you have to trade?

All of these can play an important role in the development of a trader.

Stock trading

For the day trader, the most common types of online markets are the Stock Market.

Is a simple investment vehicle and an opportunity to benefit from the largest businesses in the world.

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For the U.S. stock exchange, daily trading hours are 9:30 a.m. By 4 p.m. On weekdays Eastern time (except stock market holidays).


Forex trading

The foreign exchange market, most often referred to as Forex, FX, or the currency market. The forex market is a decentralized or over-the-counter (OTC) worldwide market for currency trading.

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In April 2019, trade in foreign exchange markets reached $6.6 trillion a day according to the Bank for International Settlements. The forex market is a decentralized or over-the-counter (OTC) worldwide market for currency trading.

Forex trading hours are from 22:00 GMT on Sunday (Sydney) to 22:00 GMT on Friday (New York), nearly 24 hours a day except for weekends.

You can open a Contracts for Difference (CFD) forex brokerage account with low profit margins and use the high leverage to raise the average amount of profit per trade and size of account.

What is the best online trading platform?

Typically most brokers offer a free demo account for you to sign up.

You'll be able to practice with a demo account, get familiar with the function before you commit your real capital on the line.

If you're committed to learning about trading and want to get started quickly, I recommend using a demo account for your first order. when i first started, I was using Axitrader demo account to practice before go live. 

Check the list of Trading platforms for forex

What do you think of making money trading online? Leave us a comment below.

About the author 

Income Junctions

Business Idea & Investing for Solopreneur Income Junctions helps you to find ways to make money online, get inspiration and advice to starting a business on your own, and investing tips for solopreneur.

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