Learn How To Trade
In this tutorial we use the Plus500 software as an example. Plus500 is one of the best brokers. When you sign up with Plus500, as a new trader you receive a demo amount of 40.000 dollar , and in this way you experience the possibilities without risk! You can also practice as long as you like with the demo functionality!
- Unlimited, free practice with a demo
- All the most popular stocks can be traded
- The Plus500 demo account is Easy & fast to open within 3 minutes
- Plus500UK Ltd authorised & regulated by the FCA (#509909)
This is a CFD Service. 80.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money
Chapter 1: Plus500 software
Plus500: the software explained
The initial screen of Plus500 gives you an impression of what you can do right away. Under (1) you can open a trade under the trade button. Open positions are trades that are already open and closed positions are trades you closed with a certain result.
At (2) you see several financial instruments you can trade in. Besides stocks, you can also trade in commodities, index funds and currencies. At the bottom left of the screen (3) you can see an overview of the money you have available in your account.
On the main area of the screen (4) you can, after selecting a category, select a certain security to study the more comprehensive data, such as a graphical chart (5).
These are the essential parts of the Plus500 software that you need when you start trading.
Opening a position
When you want to trade with Plus500, you can for example open a position on a stock or a commodity. Once you close the position the profit or loss is final. In the meantime though a lot can happen!
There are two options within the Plus500 software: you can either buy or short. When you buy, your balance increases when the value rises; when you short, your balance decreases when the value drops. You can thus achieve a positive result in increasing and decreasing markets, even in times of economic crisis! However, when you make the wrong decision you will of course lose money.
Closing a position
At Plus500 you can put more money on a position than you have deposited. This works through a so-called leverage. With a leverage of one to twenty, you can open a position that is twenty times larger than the amount in your account. The initial margin shows the amount of money that needs to be present to open up a position and the maintenance margin shows how much money you need to maintain the position.
As soon as the position has been opened, you can closely monitor the current result of the position. Profits are shown in green and losses are shown in red. You can close the position manually by pressing the close button next to the open position.
Control your trades
When you open a position, you can use the stop loss and take profit functionalities. With a stop loss you can determine the moment when you automatically take your loss; with a take profit you can determine the moment when you automatically take your profits. Always use the stop loss function, so you don’t need to watch your position constantly and so you will always know how much you can maximally lose on one trade! Dealing with risks is essential when you want to make money by trading.
Learn to use orders
One of the nifty options within the Plus500 software is the ability to open an order. With an order you can dictate at what price the system opens a position. Using an order is very handy, as it makes it possible to put an order in place after your analysis is done. Moreover, when you combine this with a stop loss and eventually a take profit, you don’t need to actively monitor the trade.
Some general tips
- Use the demo account until you are ready to trade with real money.
- Practice and keep track of what works and what doesn’t; learn from your mistakes.
- Always use a stop loss so that you can’t lose more than X% of your account.
- Don’t put too much money into one trade; only risk a modest percentage.
Part 2: Market & horizontal levels
Now that you understand how the Plus500 software works, we can go into the timing of your trades. In order to become a good trader, there are two things you need to keep in mind: you need to be able to spot trades (1) that offer a favourable profit/risk ratio (2). In part two we look at the different circumstances on the market and how to deal with them and how you can find the trades that offer the highest chance of success.
Determining the market situation
On every timescale you are always able to see the market situation. Study the rates at a somewhat larger period to determine the general trend, there are three possible market conditions:
- Uptrend: the price is mainly moving up; you’re looking for the right time to buy.
- Downtrend: the price is mainly moving down; you’re looking for the right time to sell.
- Consolidation: the price is moving between two points; there is no specific trend at this time.
Example of a clear uptrend
Example of a clear downtrend
Trading with trends
When the market has a clear trend, it is important to trade with the direction of the trend. When you believe that the price is going up within the Plus500 software, you should buy; and when you believe the price is going down, you should sell. It is important that you do not open a position randomly!
It is better to find a technical reason to open up a position. When there is a trend, the price moves in the direction of the trend. We call this an impulse. After the impulse the price drops down a bit, the retracement.
The chance of success is at its highest when we open up a position right after the retracement. We buy in an uptrend in a temporary move down and in a downtrend we sell right after a temporary move up. You can use this trading style until there is a case of a trend reversal, which is when a new trend forms in the opposite direction.
Recognizing horizontal levels
But how do you time a trade? To time a trade properly, you need to look for horizontal levels. A horizontal level is a level the price reaches multiple times but doesn’t seem to go past. A lower horizontal level in an uptrend is what we call support and a higher horizontal level in a downtrend is what we call resistance.
By opening your position on a horizontal level, you increase your chance of making a successful trade. As almost everyone expects the price to move in a certain direction, this happens a lot at that specific level! This is why horizontal levels, which are in effect for longer periods of time, are a lot more powerful than a level which is reached only a few times.
It can also occur that the role of a horizontal level changes after a break-out. A resistance can become support or vice versa. This is very handy because you can see if there’s renewed action when this level is reached again.
Special situation: consolidation
Besides the uptrend and downtrend, a consolidation is also a possible scenario. In the case of a consolidation, the price fluctuates between two horizontal levels. In a consolidation it is best to buy at the lower horizontal levels and sell at the higher horizontal levels.
Part 3: price action & the right timing
When you want to get good results, you need confluency, which is a gathering of multiple factors. We have already looked at the importance of the market situation and we have also talked about horizontal levels. To spot the perfect trade, however, it is also wise to use price action. In this third and last part of this tutorial, we look at how you can use price action within Plus500.
Working with candles
A line within a chart doesn’t give you a lot of information. That is why good traders would rather use candles. With candles you can determine the so-called price action, which gives you an indication of possible further movement. Within the software of Plus500, you can easily switch to candles by pressing the button shown below.
A candle has a body that is colourized and a stick that sticks out. The colour of the body indicates if the market is going up or down. Red shows if the price closed lower and green shows if the price closed higher. The stick shows what the reach of the price was within that period; how high or low did the price go?
Candles explained: clear trend
The high test / low test
On the left you see a high test; it is marked with a long stick above the body (a minimum of 2/3). A low test is the exact opposite; you’ll find the body on top and the stick is long and pointing down. The colour isn’t relevant with the high and low tests.
The high and low tests are both very strong price indicators. They reflect the switch of buyers to sellers and vice versa. At the high test the price was pushed up significantly, but the buyers were too weak and the price came back down. This is a strong sell signal and, vice versa, the low test is a strong buy signal.
Train tracks and twin towers
The train tracks consist of two (nearly) identical bars next to each other, first a green one and then a red one. With the twin towers it is the opposite, a red bar is intersected by an almost identical green bar. This combination can be seen as a merged high or low test; the two bars together form a failed break-out.
The train tracks are a strong sell signal because the sellers take over from the buyers. The twin towers is the opposite and can therefore be seen as a strong signal to buy.
Bullish / bearish engulfing bar
The bullish engulfing bar is a dropping bar followed by a rising bar that both surpass the bar at the bottom and the top. After the initial drop, the price kept rising; a lot of sellers joined the party and this level couldn’t be maintained. The price dropped and the low of the previous bar was also breached; this is a strong signal to buy.
Vice versa, the bearish engulfing bar is a strong sell signal. The rise is followed by a much stronger drop where both high and low surpass the previous bar.
The inside bars are a strong indicator of indecisiveness. The inside bar fits into the previous bar; thus there is no clear direction. The double inside bars are even stronger. Here the third bar fits within the second bar. After double inside bars, a strong movement down or up is to be expected.
The doji bar sends out a strong signal of indecisiveness. The doji bar is almost symmetrical in the centre where the price went up or down. Within that period there wasn’t a lot of action.
Start trading now!
You now know a lot more than other beginning traders. Do not forget that trading is not about intelligence; it is about managing and dealing with risks. Make sure you earn more on a winning trade than you lose on a losing trade.
Another thing to keep in mind is that you need to look for the gathering of factors. Do you have a good price action on a strong horizontal level? Take that position! Be prepared to lose sometimes because you can’t always win. The prices cannot be predicted with a 100% certainty. Therefore always use a stop loss!
Do you want to become an even better trader? Then it is time to start practicing on the demo account! Did you not open a demo account yet?
80.6% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money