8 Important things for new traders
People now have understood the importance of investments They are now prioritizing investing over spending. A lot of people also have started stock trading, especially after the pandemic. In this video, we are going to discuss the eight important things which every new traders should pay attention to.
- Understand yourself, understand your needs:
First and foremost, we have to understand why we are trading the markets. If I ask you, why do you want to trade, everybody will say, to make profits. Of course, Everyone is here to make profits. But, before that, we have to decide how we are going to approach the markets. I have come across many people, who feel demotivated after a few initial losses, because, they don’t understand why they are trading in the markets. Once you understand you and your needs, you will get the necessary motivation.
Some people want to trade part time, for a second source of income. Some might consider trading as their career, the means to put food on their family’s plate. Some might want to be a swing trader, some may choose to be an intraday trader. Knowing what you are going to be is the most important question, which every trader should know the answer to. This will decide our attitude towards the markets as well as the product choices they have.
- Understand the markets:
The second thing is, We have to know about the markets, the products available and other parameters. You should know about the stocks you which you want to trade. Remember, Market does not give you free money, you have to make efforts, never seek shortcuts to succeed in trading. Your approach, as decided will decide which products you should trade in
Understanding how markets work will also decide on which product to choose depending on the circumstances. For example, if you wish to trade in options, you should understand how they work and on which market conditions they should be used in.
Think Different, Act Different:
The third important thing for new traders is, understanding that what you learned in schools and colleges may not help you with your trading. While we were in school, we were taught to work harder to get better results, like, the harder we work, the more money we will make. The more marks we get, the better job we will get.
But that is not necessarily true when it comes to trading. Many successful traders make money by taking less number of trades for more profits, whereas amateurs look for more trades to make more money. The secret is to trade less, letting the winners run and cutting the losers.
The next thing is, we should check our spending. Here I am not talking about money alone, but about time and efforts. many rookies pay ridiculous amount of money to buy fancy indicators, software and robots. they believe costly indicators help to make more profits. It is with this mentality, many new traders apply different indicators, making their charts a lot more confusing. Keep this in mind, the simpler the chart is, the better it is for new traders. Instead, a new trader should focus on developing their emotional discipline and psychological stability. Remember, What do you choose to give power (thoughts and action) to, shall rule you!
- Never trade without a Plan:
The fifth important thing a trader has to give importance is their trading plan. You should make clearly defined rules for your trading which you should stick to. Your plan should have proper rules for entering a trade and exiting it. While making this plan, you should give importance to risk management and money management. Always mind the money you are going to risk, always keep your stop losses. You should not break this plan at any cost.
- Keep things simple:
The next point is, most people believe, they should trade complex setups to make more money. Remember, nobody is going to reward you for trading complex setups. You can trade simpler setups to make profits. Will you let a stranger influence you? No, right. Similarly, don’t trade a setup you cannot understand. It is always better to stay on the sidelines, rather than trade an unfamiliar setup and loosing money. Never ever depend on others while you trade. Nobody understands you better than you.
- Back test and Find your edge:
The seventh Point is your edge, your trading edge is the unique aspect in your trade which gives you a positive expectancy. It can be your hit rate or the risk to reward. It can be an analytical edge. You can find your edge by doing back testing on a reasonable sample size. You have to back test the data by doing trades in live market, as it can helps us prepare emotionally. Paper trading is not recommended as it cancels out the impact of emotions in our trades. Once you decide on your edge, you have to incorporate it in your trading plan. This edge should be the reason you trade in the markets.
- Journal your trades:
The eight point is, you should record your trades, you have to note down the reason, the entry, exit and stoploss. It should also have the emotional aspects of our trading. We should revisit our trading journal frequently to develop our emotional as well as analytical edge. This thing separates professionals from novice traders.