When you are learning to day trade, it can be daunting to risk your hard-earned money on stocks if you don’t know what to expect. The reality is that it takes education, experience, and practice to get the best trading setups consistently. However, it doesn’t mean that you should be constantly losing money early on in your trading career. In fact, seeking out the right education to start with is key. There are some other things you can do to get started.
We’ve put together some pointers to help you get going.
Get Yourself Set-Up To Trade
Your mindset, physical comfort, and daily surroundings can be large contributors to success as a day trader. There are already enough difficult variables to deal with in terms of trading – don’t let your computer, internet connection, and broker become secondary puzzles that you have to solve.
Your computer and internet connection need to be relatively quick, but most of all reliable. When you are getting started, we recommend working with secure connections (meaning don’t just plop down with your phone in a coffee shop) so that you don’t have to pivot to be an IT professional.
Similarly, work with a reputable broker that has customer support so that if you do encounter any issues with your account, they can be resolved quickly. We recommend long-standing, accredited brokerages such as Ibroker, Vanguard, Schwab – really any of the non-gamified phone apps are going to keep you well ahead of the pack as you begin trading.
Finally, make sure to keep in mind that day trading should be treated like a business – meaning your plans must be sustainable for short-term sanity and long term growth. Create a schedule, keep yourself physically and mentally healthy, and don’t force any trades early – there is a new market every single day.
Learn a Simple Strategy And Then Make It Your Own
At StockAbility™, we teach a number of different methodologies. We teach our students to ‘rinse, wash, and repeat’ the strategies until they are embedded. Once they have learned the strategies they can go ahead and make their own plan for trading. Everyone is different and so everyone takes what we teach and makes it their own.
Your mind, risk management, and knowledge of the market mechanics are going to be different than those of anyone else.. One of the keys to success is being comfortable in your strategy, so if something jumps out to you as a strategy you don’t have an interest in, don’t force it. Simple as that.
This is a feature available on most brokers – it’s when you can trade a portfolio that uses fake money but tracks it as though it is real. While we believe you cannot replicate the experience of risking actual money, learning the mechanics of buying, selling, and testing certain concepts is very valuable if you would otherwise just be throwing money into the fire to learn.
Don’t Trade with Money You can’t Afford to Lose:
This is always tip number one for beginning investors. If you are trading with money that will affect your well-being should you lose it, you will act scared or desperate when you should be calm and logical. Thus, we recommend working with a small amount of shares and capital as you learn, and then expose yourself to moderate risk at the very most.
Effective Strategies for Beginning Traders
Even before you decide what securities suit you best, or what style you want to trade, here are just a few of the things you need to know in order to even begin to become a trader:
- Learn to read charts
- Assess risk/reward
- Understand market psychology
- Backtest strategies
- Buy low, sell high
1) Learn to Read Charts
A stock’s chart patterns will be your best friend in order to identify every key indicator and deciding factor about taking the trade. Outside of the literal price of a security, this is what you should be assessing critically no matter what form of trading you are doing.
2) Assess your Risk/Reward
Before taking a trade, you should have a full plan in both directions – this means selling into strength if you hit your target profit, and setting a stop-loss for the instances where the trade goes the wrong direction.
We often work with stop losses of 1% or 2% (depending on the risk you are willing to take) so that even your worst outcomes will not severely impact your trading capital. Too often, traders get stubborn and realize larger losses because they hope a trade will reverse.
3) Understand Market Psychology
When it comes down to it, the stock market has many human elements. This means people will react to news around the world, stocks will move based on momentum trades and event-based outcomes, but most importantly, there are tendencies to notice in the way humans trade.
There are things like psychological numbers on charts where people often push to get to and then sell at. Similarly, there are trends in how people react to earnings and news, and these are dynamic with the market. Mostly, this is a reminder that the market psychology is always changing, so you must pay attention.
4) Backtest Your Strategies
Backtesting is one of the best ways to study and apply lessons that you might learn to your early ideas. Simply put, backetesting is checking on the viability of a strategy by looking at historical data. You can do this with strategies you think might have worked in the past, or you can develop an idea, wait for a time period, and backtest for the most recent market conditions.
5) Buy Low, Sell High
It is easy to chase price and buy into securities that have soared to new heights quickly. Sometimes, it can even pay off. For the most part though, by the time you have heard of a highly hyped stock, it has passed its good entry point. Learning to trade strong setups with low purchases and taking profit will help you make the best returns.
There are many more dynamics of the market that require diverse and specific skills. However, no matter where your investment growth takes you, these tenets will always apply.
Learn More at StockAbliity™
At StockAbility™, we help members of our community achieve financial independence by providing professional content unlike any other available. Our coaches, classes, and strategies all contain proprietary techniques and education for financial independence. Most importantly, seeing our clients successful brings us joy, so it’s a win/win.
If you’re ready to take the next step towards a brighter financial future, sign up for a free webinar today and invest in yourself.