Are you looking for the secret on how to make money in the stock market? Well… me too!
But in reality, there really aren’t any hidden secrets that give you the keys to unlock the doors of profitability. This just isn’t realistic.
There are, however, crucial components of a trading strategy that you need to incorporate in order to see consistent success. These are aspects that professional traders are very familiar with; and if you’re not doing them, you’ll set yourself up for failure.
We’re going to shed some light on some of the quintessentials of being successful in the market.
Let’s jump in!
Develop a Strategy That Caters to You
A trading strategy isn’t one size fits all. The nice part about trading strategies is that you can develop one that caters to your lifestyle, fitting in with how much time you’re willing to spend analyzing and researching the market per day/ week/ month. Everyone has a different set of responsibilities, and differing ways of spending their time and energy. Your strategy can seamlessly align with your specific situation.
But what is a trading strategy, and how do you develop one?
The first step to making a strategy is determining how much time and resources you have at your disposal. Be realistic here—if you’re working 8 hours a day, how much time do you have in a day to do focused research? For most people, this is no more than an hour or two. It’s nice to think that we can do it all and stay focused 24/7, but we can’t—and setting unrealistic expectations for yourself means setting yourself up for failure.
Then, pick the time in the day that will be devoted to trading. Sticking to a schedule will allow you some order in your life and will make it easier for you to track your progress.
Your starting capital is also an important factor. You won’t be able to buy expensive stocks if you have a few thousand dollars to work with, so it’s better to focus on cheaper shares or options that allow you to make solid returns by risking less capital.
After you have the above figured out, it’s time to set your goals. But if you are only focused on meeting those goals, you can be blind to what is right in front of you. This can be a slippery slope, and can lead you to gamble away your capital because you’re stubbornly trying to reach the finish line you set. A process-oriented approach allows you to make adjustments as you progress as a trader. So, use your goal as a benchmark to track your progress, rather than something you absolutely must meet every single time.
Finally, there’s one more important thing to note. You can use certain tools to help you reach your goals without doing extra work or taking on additional risk. We will go into what these tools are in a bit, but first, we must address the one factor that can make a mess of anyone’s carefully-devised plans.
Control Your Emotions, Don’t Let Them Control You
We’ve all made emotionally-driven decisions we regret. Like deciding to double down on a position you’re holding that’s well above the sell price you set for yourself, and then watching in horror as it sinks, shedding most of the gains you would have made if you pulled out sooner. Don’t get yourself stuck in this position, especially when it’s relatively easy to prevent.
There is one way to overcome your emotions, and it comes down to planning. But first, consider these two scenarios:
Scenario 1: You greedily hold onto a position longer than it’s safe to do so hoping that the price will rise more. The opposite happens, and you lose all your profits. If you just sold earlier, you would’ve been in the green, and you regret not doing so.
Scenario 2: You’re afraid that a stock might lose value, so you sell at a lower-than-optimal price, take a profit, and regret not waiting longer for the price to rise.
From experience, most traders will probably tell you that the first scenario is worse, but not seizing a good opportunity because you missed an indicator or two can also be nerve-wracking.
Greed and fear are powerful emotions that can cause us to make some pretty rash, and poorly thought out decisions. It’s important to use sound logic in your decisions in the market, and be less emotionally driven. This doesn’t mean you have to have to have ice run through your veins and be an emotionless robot; emotions are a part of being human. To be less emotional and more logical, it’s imperative that discipline is practiced.
So make a plan, and stick to it. If your research drives you to the decision to buy a stock at $10 and sell at $11, do it. Don’t regret not being able to predict the unpredictable and missing out on a potential profit if the stock in question goes to $12. You made a plan, it worked as intended, you profited—that’s something to be proud of, and the more you can replicate these small successes, the more you’ll be able to gain.
The only problem here is: research takes a lot of time. Even if you can control your feelings, there’s a ton of work that needs to be done before emotions start mattering—but there are ways to relieve some of that burden as well.
Take Action Through Trade Signals
A trade signal is essentially a call to action. It’s a trading opportunity created from the fruits of your labor (or someone else’s labor) analyzing and researching a potential trade decision. Essentially, you’re creating guidelines for your trades, and those guidelines, or criteria, are what help you determine when to execute a trade.
The criteria you set can be as simple as, “once stock “A” hits X price, buy. When it hits Y price, sell.”
However, that’s just the most basic form of trading signals. What more experienced traders look for are signal providers that tell them what’s profitable and why—it’s not enough for a signal service to just tell you what to buy without augmenting that claim.
Here’s an example. For instance, you might go long on AAPL, buy it at $132, and set a sell order for $136. In the meantime, some bad news about the FED’s inability to combat inflation comes out, and the stock market turns bearish all of a sudden—AAPL will hit $129 soon. Fortunately, your signal provider sends you a message briefly explaining what has happened, and advises you on where the price is likely to move.
You react, and sell your stock while you’re in the green, or make a short position to hedge your losses. That way, you don’t need to watch the markets like a hawk all day, and you know what to do and why you’re doing it to adapt to new situations.
The Trading Analyst (TTA) does exactly that. We offer a solution to this problem through our handy alert service that sends you a text message every time we see an opportunity or a way to prevent losses. We actually monitor the markets throughout the day and only send signals for trades we make ourselves.
That way, you don’t need to research and plan your trades for hours on end just to see them fail moments later—you get a signal, see if you like it, set up an automatic sell order, and relax. A set-up like this is especially valuable for traders who don’t have hours upon hours to spend researching and reading news articles: It’s much easier to get professional market-watchers to share their developed trading signals with you.
Use an Economic Calendar
Here’s a little tip that only takes a few minutes of your time, and can help you not only save you from losses, but also lend you powerful financial knowledge. It’s simple: check an economic calendar.
An economic calendar is an indispensable tool that successful traders use to anticipate economic, market moving events. These events are key indicators the pros use, as they almost always affect the volatility of financial markets and the securities within them. Some examples include changes/ decisions in interest rates, GDP announcements, and employment indicators such as unemployment data.
So how do you use economic calendars to your advantage? A good way to get started is to first define your goals. Ask yourself what type of information you are looking for and why.
For example, if you want to trade SPY (an ETF that tracks the S&P 500) or another large index fund, consider finding a calendar that captures a broad spectrum of events. If you are focusing more on a specific security or sector, such as JNJ or the healthcare sector as a whole, you can customize, or find a calendar that captures data related to healthcare.
Next, follow these events and analyze how they affect the security you want to trade, or how they affect an area in the market you want to monitor. Say you want to trade securities within the financial sector and an announcement is made that the Feds are increasing interest rates. It’s very likely that the securities in the financial sector will decline in value, as the effect would make it more expensive to borrow money, which typically causes financial companies to increase their rates for their customers, negatively affecting customer demand for the company’s services.
Wouldn’t you feel a little embarrassed if one of your positions tanked and you realized all you had to do was glance at an economic calendar to save it? I would. But to be fair, it’s not easy to predict what the outcome of some of these events are, but it is important to know when they’re going to happen. If you want to play it safe, and you aren’t sure how an upcoming event could impact a position you’re thinking of taking, just simply avoid trading on that day.
Lastly, keep a journal or a log so that you can record information/ data. Especially the cause and effects of the events and the market. The more information/ data you collect, the more effective your future trades will be.
Keep a Trade Journal
Have you ever written in a journal before? If you have, you’ve probably found that it is a great way to track your improvement. So why not have one dedicated to trading?
Learning to be a successful trader isn’t about constantly trying to maximize profits. Improvement as a trader 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.
OK, so how do you set one up? Naturally, writing everything down on paper is a bit old-school, and there are much better ways to approach trade journals nowadays—free software solutions.
For example, you can just use Google Spreadsheets, and use the software’s macros to add live, updating financial data to a spreadsheet. Basically, you can write down that you bought AAPL at X, sold at Y, have a live price tracker next to that, as well as a column that tells you what your returns are in percentage points.
Of course, there are many, many other ways to customize your trading journal to track your performance. The internet is full of written and video guides on how to set up a handy, logical trading journal that’s easy to understand and navigate—we warmly recommend checking some of these out.
Don’t Run Before You Can Walk
As the saying goes, start with more simple approaches when you’re just getting started. It’s easy to want to jump in the deep end, get your hands dirty and start profiting big with advanced plays and strategies. But if you start out guns blazing, you’re going to trip and fall. Practice a bit of patience, and just take it step by step.
Start with where you are comfortable. Are you comfortable putting 15% of your total capital into a butterfly call spread when you are just getting started trading options? Probably not. A mindful approach to trading is crucial if you want to be successful, especially in the beginning. The priority should be to learn, and gain experience versus making profiting a goal. Profits will come with experience, and wisdom. Knowledge imbued with experience transmutes into wisdom.
Experience comes in different forms, and incurring heavy losses are great learning opportunities. But if you’re prioritizing profits, losses will easily discourage you, and you’ll miss a climacteric lesson that could save your portfolio from future losses. Focus on the here and now. Record every gain, every loss, meditate on your decisions, ask yourself why you’re making the moves you’re making. This is the key to realizing success in the future.
Tying It All Together
We’ve highlighted here some key aspects of successful investors in the stock market. With these tools under your belt, and with the help of TTA, you are well equipped to not only make gains in the market, but also protect yourself from losses.
To conclude, remember to be a mindful and flexible trader. This means that your strategy should be as alive as you are, evolving with the ever changing chaos of the market.
Next, it is crucial to pay heed to economic events, as they almost always increase the market’s volatility. Lastly, don’t forget to keep a record of your trades. Again, think about it like collecting data, and the more data you have, the more likely you’ll make a favorable move for yourself.