Have you ever tried cooking a dish and it came out way too salty?
If you have, you probably added less salt next time, and hopefully wrote down how much you added so you can replicate your successful recipe.
Creating a profitable and safe recipe for success in the market is very similar. It takes time. So with a dash of discipline and consistent practice, you can become a trader that’s a cut above the rest in no time.
Let’s dive into some suggestions to help get you started.
Set Realistic Goals
When you’re just getting started, don’t be too full of yourself. You aren’t going to create a 3-star Michelin dish the first time you cook. A modest approach to setting goals is essential in the beginning. Make the goals attainable for yourself. When you reach them, it motivates you because you know you are making progress.
Worry not! You don’t need to start with a $50,000 account. Let’s say you start with $20,000, for example; and a realistic, average percent growth that you are comfortable with is 0.25% – 0.50% a day. Remember, this is an average, so it’s okay if you don’t hit that percent every day. And on the days you don’t reach that percent goal, just use that day as a lesson.
With the popularization of micro options, it will become more and more viable to get the ball rolling even if you’re starting off with a normal trading balance. But whatever happens, you can always make adjustments and make each trading week or month slightly better than the last one. That’s part of the process of becoming successful.
Think About Your Level of Risk
How much risk can you afford? Everyone has a different aversion to risk, and the level of risk you are willing to take on fluctuates. When money is involved and you’re just getting started, perhaps you’re not willing to take on that much risk.
You will probably be a more risk-averse trader at the beginning, meaning, you choose to preserve the money you start out with by not investing as much as you would if you’re less risk-averse. A good way to apply your level of risk to your strategy is to quantify it in the form of a percent.
Perhaps you start out by investing no more than 1% of your total capital into a particular position; but as you gain confidence, you might want to invest a higher percentage. A disciplined risk management practice becomes especially important when market volatility is high overall and investors are swapping high-growth stocks with safer assets—it pays not to be stuck with a bunch of risky stocks without insurance when things start going south.
Use Technical and Fundamental Analysis
What tools do the pros use? A profitable trader uses technical and fundamental analysis to help maximize their gains in the market. Technical analysis involves analyzing chart patterns and uses the historical pricing of a stock to make predictions. Fundamental analysis involves looking at the underlying company’s financials. Let’s briefly expand on these two types of analysis.
With technical analysis, the trader utilizes several forms of technical data to help make decisions in the market. This is a common form of analysis used by swing traders to take advantage of swings in a security’s price within the market. Some of the technical data employed includes the analysis of chart patterns, finding resistance and support lines to hopefully predict a large upward or downward trend, and historical prices and volumes to also help make predictions in the movement of a security.
Fundamental analysis is a little more cut and dry. Fundamental analysis helps the trader determine a security’s fair value, or it’s price according to the underlying company’s financials, which differs from it’s market value. This type of analysis not only includes looking at the underlying company’s financials, but also analyses other competitors and markets, most often within the same sector.
You want to bundle the two forms of analysis together to make the most effective decision for yourself in the market. This can take some time to fully grasp and apply effectively, as the learning curve is steep for the beginning day/swing trader. This is a time, and energy-consuming process. And full-time jobs can certainly make it difficult to spend thoughtful time researching and trading.
Pros use tools that can help make the learning curve more gradual for you, and also save you time and energy. This is where a service like The Trading Analyst really comes in handy—and this is the reason why we provide alerts. As a premium alert service that saves you hours every day, The Trading Analyst costs a fraction of the returns you will make with profitable trades.
Make Consistency a Habit
Forgetting something you used to be good at happens to all of us. It’s most likely because we haven’t practiced in a while. Consistent practice helps to build a strong foundation to stand on when making decisions in the market, and the frequency at which you practice is imperative. This is how the foundation keeps building.
Keep the information fresh! Say that you have even 45 min – 1 hour per day to set aside. Use that time to focus, and chip away at research, journaling, and trading, to slowly develop your strategy and profits.
But don’t forget: Consistency includes making a habit of keeping your finger on the market’s pulse, as that also increases your odds of spotting a strong buying signal—this is something that veteran traders love to see. For example, you can spot a huge increase in call options of a stock you’re eyeing at a good time and make a strong move before other, more casual traders catch on.
Keep a Trade Journal
I personally love journaling! It’s so rewarding to look back at where you were, say, a month or two before, and realize how much you have improved. In the beginning, it’s not all about maximizing profits. Improvement is about learning and building your knowledge in the market.
Your journal will serve as a database of knowledge. Data-driven decisions only improve as more data is collected. So as you accumulate data (knowledge in the market), statistically, your trade decisions will become stronger, and closer to the mark you were aiming for.
Some examples of things that would be fruitful for you to record: the date you bought or sold a stock, the name of the stock, the trade price, how long you held on to it, the level of risk you are assuming, some notes about why you made the decision to enter the position, and why you decided to exit the position.
Remember, There Is No Such Thing as Failing
Success and failures? No. Just successes and learning—both are valuable.
Failing is a crucial step in being a profitable trader. Think about it like cooking. If you finish cooking a dish, and it tastes way too salty, you know not to add that much salt next time. And if you nailed it the first time, hopefully, you wrote down the recipe. It’s important to keep track of your progress so that you can make consistency last.
If you don’t fail, you can get cocky. And when you get cocky, it’s easier to make poor decisions in the market. Stay humble when you succeed, and don’t be discouraged when you “fail.” Celebrate both! Each outcome is an opportunity to learn.
Think about it like this: you are confident about a buy decision, you spent some thoughtful time researching beforehand, and you lock in the trade. Then your position starts creeping in an unfavorable direction, moving you further away from your profits. You find out later that this was due to the industry as a whole in a downward trend, influencing the price of your position—now you know what to look for next time. That is valuable information that you can carry into your next buy decision.
Lastly, Be Patient
Good things come with time, as will your trading strategy. It is unreasonable to expect yourself to develop a profitable trading strategy right off the bat. You are going to lose out, and that’s okay! Be patient with yourself so that you can transmute your losses into lessons, and apply those to your strategy to eventually build a strong plan of attack.
Expectations often lead to disappointment. It’s easy to get discouraged when you have been making consistent gains, then they get slashed by one huge loss. Do not expect too much out of yourself at the beginning, you’re just getting started. Practice patience.
So again, give yourself at least 3 months to work out the kinks in your strategy. In the beginning, you’ll learn a lot, and collect a good deal of useful information that will assist you in making informed decisions. You’ll start realizing profits before you know it. Stay patient in the meantime, and have faith that you’ll realize those profits you are looking for.