A lot of people these days have been considering trading and investing as a lucrative career. In fact with the rise of indexes globally and new age millionaires on the rise, people feel that trading can help them make fortunes.
Unfortunately, there is a lot of fog on this subject as seldom people talk about their losses or project how bad is the condition of their capital accounts. Usually, under these circumstances, a lot of charlatans are turning into coaching gurus and are fooling around people. So, This post will help novices to understand how to trade like a pro.
1. Don’t buy less liquid stocks
If a stock has very low volume and low price too, a lot of people jump in considering it to be a bargain hunting. One needs to avoid trading such scripts.
2. Set the target on a terminal, not in Mind
Its necessary for the people to set targets manually as and when the market begins. Often it happens that the stock moves so swiftly that you fail to put in target and miss the golden opportunity.
3. Choose the right broker
It’s important to understand that the right broker plays an important role in choosing the wrong one can cost you huge due to the hidden costs. As a result, brokerages might eat up a massive chunk of your profits.
4. Have your own trading setup
Its important to device your own trading setup and not depending on an existing one. If you choose an existing one, make you back-test it properly.
5. Never put all eggs on the same market
As the legendary investor Warren Buffet says, one needs to diversify to make sure one gets consistent gains. Don’t put all your investments in the same basket.
6. Nurture Discipline
Discipline is the key to succeed in any endeavour as so in trading too. One needs to have patience, skills and strategy all in place in order to succeed in this market.
7. Choose your guide wisely
As mentioned initially, a lot of charlatans have occupied the space and hence it is of paramount interest for the people to choose their advisors wisely. One mistake can cost you fortunes. It’s better if you check their past performances.
8. Entry in haste, regret in later
You need to understand that entries are equally important while trading. If a stock is just moving in your direction and you feel you have missed the train, then it is better that you wait for the entry rather than jumping in.
9. Keep tight Stop Losses
One reason why so many lose money in the stock market is that they don’t keep stop losses. They simply wait for the things to turn in their favour and as a result, they lose a lot.
10. Don’t rely on media
Medias are here to make some good bucks by selling information. Most of it is already known to big investors and are factored in. Hence, it’s not wise to lend all ears to the media and burn your hard earned money.
11. Consistency is the key
I have often told my clients that it’s not about hitting home runs on each ball; it’s more about taking few runs but being consistent. Consistency is the mother of mastery.
12. Don’t gamble on result days
A lot of people have observed wild swings during quarter results which entices them to jump in with a trade. This is a big mistake. If results or the move is not in your favour, it can wipe off your account.
13. Don’t Over-trade
Some people get addicted to trading to such an extent that they can’t think of anything else. avoid getting trapped into this kind of addiction.
14. Don’t take massive leverage
No doubt, leverage is the key which has helped millions of traders in making millions but it has killed accounts of billions too and this fact can not be denied. Take leverage only when you are expert.
15. Start loving small losses
coming with a wired expectation that you would always gain in the game of trading is a foolish idea. Even the best traders of the world know how to accept losses. The earlier you accept that you were wrong and cut losses, the longer you will survive.
16. Monitor your traders regularly
A block deal or sudden Geo-political news can ruin your trading account and hence it is important to keep a regular track of your trading account.
17. Check your trade book at least once in a week
How did you perform the whole week? If you know the answer to this question, you can devise new strategies, cut down losses, introspect and make the next week more productive. Keep the record.
18. Positivity loop
Success breeds success and which in turn breeds confidence. You need to identify your winning trades and also keep yourself positive most of the time. Trading is one of the most stressful jobs and hence you need to try every bit to remain positive.
19. Know your Personality
If you are an adrenaline junkie then day trading sounds well for you but, if you miss that lion heart, then you need to reconsider and probably stick to swing trading or positional one. It’s important to identify your trading style before you jump into the business of trading.
20. Stick to Plan
Seldom it happens that novices stick to the plan. They devise a strategy and then keep on fluctuating with the dynamics of the market. Yes, markets are changing shape like amoeba but that shouldn’t be an excuse for you to over-diversify your plans. Stick to plans and remain consistent.
21. Organic grains will help not bigger deposit
If someone loses the account value, the most common thing they do is put in some more money in the account. The obvious question is, what gives you the right to trade with more money if you fail to make money from the existing capital? Try to make small gains, build an account and then try trading with larger amount of funds.
22. Learn technicals like a pro
If you need to master trades , you need to have mastery in technical analysis.
23. Read a lot
Reading about technical analysis will give you the biggest edge in the market. The more you know how to decrepit charts, the language of candles and price action, the more you will have chances of making money through markets.
24. Taking a pause when you are losing
It happens with pros too. No one is profitable everyday of the year. It’s just that winners halt for a while when they are losing continuously, while scared looser keep trading until their account becomes zero.
25. Don’t Play Event days
Central bank’s monitory policy or Presidential elections, name any such grand event when market hasn’t witnessed any volatility; Markets are bound to witness volatility on such occasions , hence it’s better not to trade on these days.
26. Averaging is good but over averaging is a debacle
you pick a stock which falls suddenly. You average. It falls yet again and you keep on averaging until a point arrives when you can’t average anymore. Result- Account collapse. Hence, as long as you don’t master the art of trading, it is better to book loss rather than averaging.
27. Stop trying to copy someone
When you see some ace investors, you feel like copying their portfolio. This isn’t wise idea because their capital, information extent and strategy differs. It’s better to have your own strategy.
28. Never Do what you don’t understand
If you are not sure of what you are doing still standing with a position, Congrats! you have found the shortest route to doom. It’s better not to trade when you don’t know why are you trading.
29. Diversify only to the extent of monitoring
Over-diversification is also not conducive to the trading ambience. If you are not able to keep a track or focus on your trades, diversification would do more harm than good.
30. Control your emotions
As long as you can control your emotions while trading, you are the one who controls the system. The moment emotions take control, the markets take over and can be ruthless.
31. Automate, Automate and a little more Automate
As told in the previous point, emotions can be one big setback while you are trading. Hence, it is better if you can automate the whole process. I am not suggesting you buy expensive software but just keep some pointers ready on unpredicted situations like a sudden crash in market or news related to your stock.
32. Use this ratio – 3:1
Risk reward ration ensures that you make more than what you lose. As per my experience, 3:1 forms the best risk-reward ratio. It is hence advisable to keep this ratio intact to be more profitable.
33. Don’t be so skeptical while hitting BUY order
If the trade is qualifying all your criteria, then why not hit the ‘BUY’ button. Sometimes you miss the train because you become over cautious.
34. Don’t Make it complex
Using 2-4 indicators while judging whether to enter a trade or not is fine, but juggling along multiple indicators with as high as 10-20 is a big mistake. This could ruin your chances of entering. Keep the methodology simple.
35. Don’t Trade with borrowed money
Only trade with the money that you can afford to lose. One should understand that trading comes up with associated risks and there is nothing called guarantee here. So, if one intends to make stress free decent gains, never trade with borrowed money.
36. Learn from your experiences
As said- “Experience is the best Teacher” . Most of the things which you would learn about trading would come through experience and not through reading only. So, try to learn from your mistakes and then rectify them.
37. Trend is the Friend
Going against the trade seldom makes money but, going with the trend mostly fetches you gold. Make trend your friend and don’t go against it as long as you have a huge pile of cash which you can afford to burn.
38. Money management is Vital
If you trade well but still fail to manage your gains and money well, then there is a serious issue. In order to be successful, you need to manage your money well. Try to allocate right amount of funds, look for all right possibilities and only then prefer trading.
39. Fundamentals are also important
I know most traders would argue that for trading, it’s just Technicals which play important role, but we need to understand that fundamentals play a key role in identifying the right stocks. If you do a bit of nice fundamental analysis, you will be in a position to identify the right stock to trade with.
40. Treat it like a serious business
Don’t approach trading as a hobby. If you don’t take all the areas with proper commitments like the brokerage, tax, buying and selling then you may not be able to get serious gains.
41. Keep on educating yourself through financial news too
A lot of financial news medias brings information about a lot of topics like PE ratios, current industrial developments and investor education. Keep hunting for the same.
42. Take Advantage of Technology
Technology should be used at the best in identifying stocks using the best indicators, charts and offer bid analysis.
43. Getting a mentor helps you win half the Battle
If you fortunately get one experienced mentor who also traded his own account, then you are bound to learn the art of trading early. Its better to have a committed mentor than going for courses which just gives a basic overview. Practicing under a mentor is an old edge method of learning.
44. Survival of the capital is the main quest
Just imagine, your account going burst and helplessly trying to recover. Not possible, right? Hence, preserving the capital is the most important aspect of the trading business. Use stop losses, use booking targets, close trading while losing. In short, use everything required to protect your capital.
45. Sizing is important
If you made loss in 100 shares and now you are expecting to hit jackpot with 1000 shares, I will say, its pure foolishness. Earn the right of trading a big account by making gains from small amount first. It’s very important to keep a check on the lots with which you trade.
46. Sometimes learn not to Trade
Whatever style you pick, there will be circumstances when you would fail to find a perfect strategy to trade with. Under such situations, it is better to avoid trading rather than trading. No trade is also a trade.
47. You learn quicker when real money is involved
A lot of traders start their carrier with paper trading which is absolutely fine but when you stick to it to research all strategies then it’s a bad plan. It is important to understand that real money gets real emotions involved and so its more effective as compared to paper trading.
48. Select a niche and segment, stick to it
Everyone is not make for equities. If you are finding it hard to crack the secret of equities then better switch segment- currency or commodities. Master a niche and stick to it.
49. Have realistic expectations
If you plan of making unrealistic gains like 15-20% in a day, then you are likely to get stuck and eventually burn out cash. It is better to have realistic expectations when you start trading.
50. Take a break
Sitting constantly in front of your laptop for trading will put undue stress on your eyes as well as brain. This stress might result in some tension which can hinder your profitable trades. Take a break occasionally.
51. Don’t Give up
Finally, make sure that you don’t give up losing. Keep learning and devising your own strategy. Failure is the ladder to success and hence if you fail, get up, learn and then grow.
52. Bring them all together
Everyone looks for a shortcut of success but, the only way of success is knowing everything about what you do.
So, stay positive and keep Trying. Let us know which tip you liked the most and which you didn’t.