Have you just made a conscious decision to make trading a part of your life? If the answer is yes, you probably have a lot of questions, and the most pressing is “How to trade?”. You are not the first one to wonder what trader’s first steps should be. You still have to figure it all out, but in this article we answer the most important questions and provide you with an idea of how trading in general works.

Trading fundamentals

All trading on the IQ Option platform is carried out with Contracts For Difference (CFDs), which means that when you open the deal, you do not actually acquire the asset, but rather invest in its price development. The payout you receive will depend on the prediction that you make. If you manage to predict the direction of the price change correctly, you will receive your investment back plus a certain premium (the precise amount will depend on many factors). Should your prediction turn out to be a mistake, the investment amount will be deducted from your account.

There are two types of deals — Long and Short. You open a Long position by clicking Buy. It means that you expect the asset price to go up over time. To open a Short position, you need to click Sell, which means that you expect the asset price to drop. Notice that it is, thus, possible to speculate on both positive and negative price movements.

Depending on the asset you trade, deals can close automatically (deals with set expiration time) or stay open until you close them manually (deals with no expiration). When you open a deal with no fixed expiration, you can keep it for as long as you like and close it whenever you deem appropriate based on your trading strategy. You may also use tools like Take Profit, Stop Loss and Trailing Stop to close deals automatically when a certain condition is met. This will also let you control the desired risk-return ratio better.

How to analyze the market?

The decision you make regarding the direction of the future price movement determines the outcome of your deal. Therefore, it is crucial to learn as much about the behavior of the asset you are about to trade as possible. Educate yourself by watching video tutorials (can be found on the trading platform itself) and reading blog articles. It is essential that you understand how and what exactly you trade before you allocate real-life funds to a trade. What should you do to make a correct prediction? There are 2 major ways to analyse the market: technical and fundamental.

Fundamental analysis relies on market news and earnings reports. In other words, factors that cannot be directly spotted on the price chart. This analysis method is usually applied to long-term deals, but can also help predict volatility spikes — situations when the price grows or deteriorates rapidly.

Technical analysis, in its turn, relies on the recent price developments to predict the future. Technical analysis is performed with indicators that apply special calculations to the chart to help identify the trend, its direction, strength, volatility etc. You may use several indicators at the same time in order to see the full picture before you make your next deal. All information that is required for technical analysis, apart for strategies and manuals, can be found on the price chart itself.

Here is how to combine two analysis types effectively.

Both can hint at the future asset behavior. However, it is worth remembering that no analysis can provide accurate predictions 100% of the time. All analysis types can sometimes provide false signals due to the erratic nature of global financial markets. The future is not defined, and the market is not an exception. Your task, as a trader, is to squeeze the most out of information that you receive from the market.

How to lose properly?

In trading, there is no guaranteed victory and loss is always a probability. It is essential, therefore, to learn not only how to win but also how to lose properly.

Stay realistic about the financial outcome of your trading endeavour. Ask yourself: “If trading was that easy why would people like Warren Buffett spend decades building their fortune?”. Trading is a not get-rich-fast type of thing. Rather it is a slow but steady journey. Understand that trading process is as important as the result you receive and you will notice your skills improve over time.

Try not to get overly excited, even when you feel it is perfectly normal to be overrun with emotions. When you turn to emotions, either positive or negative, you lower your chances of making a correct prediction and, as a result, to stay in the black.

Start small, find the strategy that fits you and develop a trading plan. Once your strategy is ready, stick to it and do not let your mind wander. Do not forget to abide by the risk management rules, as they can make or break most of your deals. It is risk management rules that will protect your funds and turn you into a goal-oriented trader.

Many more questions will arise while you learn the intricacies of trading. Don’t be afraid to come to our blog for help. The more you read, the more you learn, the simpler it will be for you to navigate in the world of finance. You will acquire knowledge gradually, at your own pace and will feel more confident and calm with time as your practice. The important thing is that you have made your first step.