Here’s a brief picture: you’re sitting at home during quarantine, wondering about quick and easy ways to make some small-time money. You don’t want that job at McDonald’s, you want to do something a tad bit more skill and knowledge based. You keep getting these adverts on your phone and laptop that entice you into certain paths to take but you’re in the blind as to which one is the best pick. One such path is stock investment and trading. It’s a volatile world that can make any unprepared participant lose his/her way if not careful. This article is a brief motivational guide for beginners to start somewhere in this world of trading.
Devote sufficient time to learn the basics
Trading, whether it’s short-term or long-term trading, is a job nonetheless. That means ensuring you take out a few hours from your schedule that you would otherwise be using to slack around, and utilizing it preciously. In brief, it involves avoiding any distractions and entering your zen zone with merely 3 elements: you, your trading platform and your trading strategy. To build this trading strategy, you need to, and I can’t emphasize this enough, STUDY. Don’t click off just yet, because as much as you might dislike the word, “study” in this context is having a mere understanding of how the system of price and the trading of stocks work. One subject that you must study in this field is called Technical Analysis, wherein you learn to read various price charts and the application of indicators. It is crucial that you know how this works in order to base your trading decisions on the chart’s predictions. You have the freedom to learn from the best free resource out there: the internet. Go wild on YouTube, read a few books like “Technical Analysis of Stock Trends” by Robert D. Edwards and John Magee or “Trade Like A Stock Market Wizard” by Mark Minervini, and then start with paper trading on a demo account on a trading platform of your choice. Build a strong, solid foundation so that the rest of the journey is not filled with unpredictable impediments.
Manage your risks
Once your foundation for the knowledge of stocks has been laid in solid, you can now move on to the next step which is selecting a trading platform. You need to be able to get accustomed to this platform for convenience during transactions of your trades. After looking around and being comfortable with the platform, you can conduct paper trades with your trading strategy. Initially, you may feel overwhelmed with all the numbers across the screen, but if you are confident of your trading strategy, then you can observe the pattern in which you can smoothly carry out your paper trades. It is easier, as a beginner, to carry out the trades for small lots so that you can keep track of the figures without difficulty for the sake of cohesion. It is essential that you maintain the log of every trade that you perform on your platform along with relevant details, especially why you took a particular decision to trade at that certain point. This acts as a feedback for you to review your trading strategy after the market closes to judge your success rate with said strategy. For instance, if you find one aspect of your strategy inhibiting better returns, then you can improve this trading strategy or even devise a novel, better strategy for the next paper trades you conduct. After this period of testing, development and improvement, you should be able to finalize on one appropriate trading strategy to carry out real trades with small lots before progressing further.
Apologies if you thought it’s an easy task, but like everything else you need to be prepared to overcome challenges. Not saying to start off rough, because that’d be a waste of all the money you’ve invested. Instead, you need to realize and accept that there might be bad days inevitably, and you should avoid being upset about spilt milk (and avoid making everybody else miserable at the same time). What is a bad day? Well, it differs from person to person but in a general sense, it implies making a net loss from the trades performed. This can be over a period of a day, week, month or even a year, depending on the type of trading you indulge in. One risk management method with which you can reduce incurring these losses is ensuring that you know your way around the Stop-Loss function on your platform, which limits your losses to a lower value than something relatively worse. Nonetheless, you should always maintain your mental state to accept whatever happens by keeping your emotions out of the play whenever you are trading.
“YOU SHOULD NOT BE EMOTIONAL WITH THE TRADE THAT YOU HAVE TAKEN.”
Live safe and have fun in the trading world!
Watch out for our next article where we speak to Alain Faddegon, an Execution Trader at Optiver.