Anyone can join a broker, click a few buttons and start trading stocks. They might even make a few bucks here and there, but inevitably this approach to trading is not sustainable. If it were, we’d all be throwing rockstar parties on our private Hawaiian islands and hanging Leonardo Da Vinci diagrams in our bathrooms by now.
95% of all traders will never see their mega millionaire dreams come true. What sets the remaining 5% apart is their disciplined approach to trading as a life-long learning process.
Whether you’re a beginner just getting started with trading, or have hit a rut and are getting back to the basics, here are some helpful tips to set you up for success:
1. Do your homework
Like any skill, becoming an expert trader takes time and repetition. You may be tempted to get into explosive stocks on earnings news without doing your homework first, ignoring position size and failing to set stop losses; but this risky type of trading can lead to disaster. Becoming a winning trader is about increasing your probability of success by improving your win ratio and minimizing your losses.
Build your watchlists, set your targets and calculate your risk on every trade. Journal about your trades, paying special attention to how well you’re managing risk. Take note of any gaps in your learning and document bad trading habits that are costing you money.
2. Study, study, study
Start small and scale up by choosing 3-4 types of stocks and patterns you like to trade. Get to know the ins and outs of those trades by studying chart patterns every single day. Familiarize yourself with how market indexes, sectors and stocks influence each other; and then watch the market move.
Studying chart pattern flashcards can be a great way to build the muscle memory necessary to spot patterns on the fly and greatly reduce the amount of time it takes to get in and out of trades. Read books to supercharge your learning. Long-time swing trader Paul Singh has an extensive list of 21 books that taught him how to trade.
Podcasts like Chat with Traders is a great way to hear from experts and become familiar with proven trading strategies.
3. Pick a learning strategy and stick to it
The world of trading is vast, from cryptocurrencies to forex, scalping, earnings, biotechs, micro futures, technical analysis, longing and shorting; the list goes on and on. With so many different types of stocks and trading methodologies available, finding your own rhythm can feel overwhelming. This is where a strategy comes into play.
Your approach to trading will be personal, depending on your lifestyle and goals. Whether you’re seeking instant gratification and income with day trading, or building long-term wealth with an IRA, a trading strategy can help you navigate the noise. Your trading plan should include your goals and objectives; approach to risk management; personal trading rules; and a routine for getting in and out of trades. The key is to create consistency in your learning by following a specific methodology and sticking to it.
4. Form a study group
Trading can be much more fun and rewarding with others. Form a study group of 3-4 serious traders to exchange learnings and share best practices. Find a partner to help keep you accountable to your trading strategy.
Follow your favorite traders on Twitter, or join a trading community, like StockTwits, to stay in-the-know of trending stocks. Be cautious about getting trapped into stocks that are hyped up in trading chat rooms. Rely on your own research and gut instinct to make trading decisions.
5. Work hard, play harder
There are no shortcuts to becoming a successful trader. You may become an overnight sensation by luck of the draw; but you can just as easily blow up an account by not learning and practicing the fundamentals. You have to put in the hard work; and sometimes that means staying up late at night to build your watchlists; waking up early in the morning to watch premarket action; or spending your weekend charting patterns. The more prepared you are, the faster you’ll be able to make decisions, and the more confident you’ll be with managing your trades.
6. Practice makes perfect
Now that you’ve studied your charts, done your homework and built your trading
strategy, you’re ready to start trading. Keep practicing winning habits to increase your probability of success.
Sign up for a trading simulator. This will allow you to make mistakes and adjust your
strategy without the emotions that come along with having real money on the line. Remember, there is no rush to lose money. It’s better to be out of a stock and wishing you were in, than in a stock wishing you were out.
7. Drop outs don’t get the degree
No successful trader has won 100% of their trades. You will win some, and you will lose some. Stick with it! Take note of your wins and why they were successful. Journal your losses and how you can mitigate them. Manage your risk so you can stay in the game. Persevere through the downside until you see the upside. Never, ever give up.
The bottom line
If you want to make money as a trader, it’s going to take hard work and perseverance. As the stock market evolves with time, there are always new trends emerging. COVID-19 has brought with it a wave of volatility in the stock market that’s now being dubbed “The Kangaroo Market,” where stocks hop up and down between uptrends and downtrends over a period of time. You want to understand the fundamentals of how the market works so you can quickly adjust your trading strategy to take advantage of these new opportunities to make money.
With the right approach to learning, continuous study and consistent risk management, trading can be fun and profitable.
Get out there and crush it!
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