What should you know before your first trade on a live account?

What to do before your first trade on a live account:

A basic understanding of the financial markets

You should know roughly how financial markets work. Financial markets are ecosystems where buyers and sellers meet to exchange assets such as stocks, bonds, currencies, derivatives, etc.

However, each market has its own specifics - for example, the forex market is known for its high liquidity and 24-hour operation, while the stock market can be more responsive to corporate results, and due to the fact that exchanges open for practically 8 hours, there are frequent gaps in market opening.

Understanding the mechanisms that drive these markets, including supply and demand, economic indicators and political events, is crucial to successful trading.
 

Fundamental analysis

Fundamental analysis focuses on assessing the intrinsic value of an asset through economic, financial and other qualitative and quantitative factors.

For stocks, this may include analysis of the company's balance sheet, earnings per share (EPS), price/earnings (P/E) ratio and other ratios. For currencies, it may involve analysis of interest rates, inflation and the economic policies of governments. Fundamental analysis helps traders understand why the price of an asset is changing and predict future price movements.
 

Technical analysis

Trading is about the ability to use technical analysis. Technical analysis involves the study of charts and the use of various technical indicators, such as moving averages, to help identify trends and their changes. Technical analysis also includes concepts such as price action, smart money, etc.

It is important to note that there is no holy grail that will 100% guarantee making money by trading. We are all different and a different strategy will suit everyone.

The psychology of trading

Understanding the emotions that play a role in trading, this accounts for 80% of success in trading. It is impossible to be a successful trader without the ability to understand what is going on inside of us when we trade.

Fear and greed are the two main emotional states that affect traders and it is important to keep them under control.

Unfortunately, it is not possible to simulate 100% how emotions will affect you in trading in a demo account. However, it is safe to say that trading will - at least in the early days, but realistically it can be a period of years - have a very similar effect on your mind as, for example, playing poker for money or betting on sports. The manifestations are identical. One example is the phenomenon known to traders as catching up.

In order to reduce the risk of succumbing to emotions in trading and at least have an idea of what awaits you in a real account, you must first understand them. Therefore, study some psychology beforehand on the effects of randomness and random reward on the psyche, the influence of stress and dopamine in trading, cognitive biases, etc.

Note: In some cases, it may happen that a trader develops an addiction to trading that has the same manifestations as a gambling addiction. Or he goes into trading with the manifestations of an addiction he has already developed somewhere else, and it is not necessarily a gambling addiction. Here we have one major recommendation: first one must be cured and only then can trading be considered.

Risk management

Risk management is essential for survival in financial markets. This includes proper position sizing and the use of stop-loss orders to minimize losses. Knowing your risk appetite is also an important element, i.e. knowing how much you can lose and never risking more than you can afford to lose.

Trading strategies

The next necessary thing is to have a trading strategy that is in line with your financial goals, risk tolerance and trading style. The strategy should include clear parameters for entering and exiting trades, risk management techniques, and predetermined criteria for selecting assets to trade.

Remember that less is more in trading. "Too many hares, the death of the dog". It makes no sense to trade all instruments available on a broker's menu. Choose only a few and trade those. For example, these may be majors on the dollar. Of course, you must test your strategy on a demo account first. There it should work for you for at least half a year, but preferably longer. Take your time. Finding a strategy on a real account is always a recipe for wiping it out quickly.

Trading plan

A trading plan acts as your personal compass in the markets, providing you with a clear overview of your trading objectives, strategy, risk management and decision criteria. So you should write down in your trading plan what kind of appreciation you want to achieve, what instruments and trading strategy you will use, how you will approach risk management, but then also, for example, what hours you will trade and what you will do if things don't go the right way.

Remember, following a trading plan can help minimize impulsive decision making and ensure a disciplined approach to trading. Sticking to the plan should have already been tested on the demo. If you were unable to follow the plan on the demo, do not go to the live account.

Platform and tools

It should be 100% clear to you how to operate the trading platform. Knowing your trading platform and knowing the tools and features it provides is essential for effective trading. This includes quickly entering and closing trades, analyzing the markets using charts and indicators. Also, things like swaps or fees should be clear to you. You will find out everything in time for the demo.

At Purple Trading we allow our clients to trade on the MetaTrader 4 and cTrader trading platforms. On both of these platforms, you can also take advantage of our unique Purple Indicators for free to take your technical analysis to the next level.

Just be aware that the demo has some limitations (for example, order execution during gaps is usually at the order price, whereas in real life it is at the first available price, no slippage etc.). Therefore, ask your broker what transactions you should not test on the demo, as they will not work in real life either (for example, the accuracy of stop loss execution on a gap after the market opens cannot be tested on the demo).

Choose a reliable broker who will not trade against you. Purple Trading is one such broker. This is because our trading model is STP, which means that we only broker market access for clients and send client orders to our liquidity providers, who pass them on to the market. This means that there is no conflict of interest and we do not profit from client losses.

Motivation

Answer clearly the question why you want to trade. Motivation must be positive. Negative motivation such as not having to deal with an annoying boss or a non-paying client in trading is possible and unfortunately mentioned by some trainers, but unfortunately it doesn't work very well. If you base your motivation on running away from the challenges your job puts in front of you, it won't work in the long run.

After all, trading is a long run, so the main thing is to make trading fun for you. It's a continuous learning process, which is not always going to be enjoyable. Successful traders know this and therefore regularly analyse their trades to identify what worked and what didn't etc.

This self-reflection allows the trader to grow and improve by learning from mistakes and adapting their strategies to improve performance. The important thing is to keep an open mind and be prepared to accept feedback without prejudice.
 

Financial reserve

The last thing you should carve in your mind before you click for the first time: Never put money into a real account that you've borrowed from somewhere or that you would otherwise miss. You should only trade with money that you can afford to lose and whose loss will not cause you to change your lifestyle.

That's all. Only after all these 10 points are clear can you afford to open your first real money trade.