Trading MUST Knows.
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Hi, In today’s video, we discuss what you must know about stock trading in your first year.
If you are new to trading, your first year will be eventful. If you are lucky enough to start at the beginning of a bull market, you will likely make some easy money. However, if you don’t buckle up in the choppy or down trending markets that follow, you can lose all your profits and some capital too. If you start in a choppy or down-trending market, there is a high chance that you may shun trading for good.
Therefore, irrespective of when you start trading, it will be immensely helpful to know what to expect from it in the first year. Once you set the right expectations, your trading career may last beyond the inevitable downturns.
The first thing you should know is that markets move through cycles.
The financial markets often move in cycles know as boom and bust. It’s the boom that excites new traders and the bust that makes them lose interest.
Always be mindful of the market cycle and the period of the cycle in which you are in. If your trading is yielding good returns, make the most of it, but don’t expect them to last forever, Good periods always come to an end.
One of the most common errors traders make is handling winners in bull and bear markets. While you can let the profits run in bull markets, you need a strict process to take profits in bear markets. Another factor that impacts returns in bear markets is the win rate, or the frequency of winning trades. In a bear market it’s incredibly hard to turn a profit, not because the trading decisions are wrong, but because the whole market is moving against you.
There are many other factors that one must consider if the market conditions are changing. Being cognizant of the changing conditions itself helps you to be in the game in the long- run.
The second thing you must know in your first year of trading is that it is different for different traders.
One of the biggest mistakes traders make in their first year of trading is borrowing a trading style from someone and expecting it to work exactly the way it’s working for other traders. While it can happen with time, it doesn’t always happen from the get-go.
New traders are often emotionally charged, and even when they get the strategy right, they fail through the psychological part of trading. You need to have the right mindset, the right expectation, and appreciate the market cycle.
Some traders have a natural inclination towards taking significant risk, while others can’t sleep after just a few ticks down on a trade. This is why you must evaluate yourself while you are in the ring and change your trading style that is in sync with your behavioral makeup.
The third aspect you must be aware of as a beginner is that trading is not gambling.
Most traders enter trading because they feel it’s easy money. You buy, you sell, and pocket the difference. Newbies also think of trading as a get-rich-quick scheme and expect each trade to be a home run. Worst yet, they are taken back by a sequence of losing trades and freeze when it comes to realizing those losses, sometimes even compounding the losses further by averaging down.
One must understand that trading is a marathon and not a sprint. If you treat it as a sprint, you will most likely be disappointed with the outcome. The idea is to go slow and small, learn from your mistakes, build a process, develop some discipline, and take baby steps before increasing the risk.
In trading, you compound profits from several trades, so, don’t expect any one trade to make you rich. That’s a recipe for disaster for new traders.
The fourth important aspect is risk management, which is the holy grail of successful trading.
Many traders think that winning in trading is about a magical setup that will help them win big again and again, when it’s precisely the opposite of it. Good trading is playing good defense. Most smart traders try not to lose big by taking many small losses.
Great traders also understand when it’s time to go big and when it’s not. Their position sizing is well thought out and not based on emotions. Their process bakes in the risk and makes them trade light when the risk is high and put more on the table when the risk is low.
New traders, on the other hand, often focus on returns first. The greed of the upside makes them blind to the downside.
It will be a great foundation if you start focusing on the risk in your first year of trading. Once the eye is on risk, you can hope to be in the game for a long time.
In continuation to risk management, traders must ensure not to make mistakes that push them out of the game. Try to reduce the risk of losing significant capital.
Traders generally try to recover their losses by getting into revenge trading and this is when they lose even more. Some traders take huge leveraged bets to recover it all in one trade, which pushes them out of the game when it goes wrong.
There are many other ways to end your trading career in one stroke. If you try not to explore those ways, you will be fine.
Even if you don’t make huge returns in your first year of trading but still scrape through with a lot of learnings, that is a successful year.
Another important aspect of successful trading is to record as much as you can.
Successful trading is all about eliminating as many mistakes as possible and identifying and instilling good trading behavior. The best way to identify your mistakes is to make a note of them in your trading journal. You should document not only your mistakes, but also everything you did right including your thought process and mindset while taking the trade.
For example, if you frequently kill your trades early out of fear of giving away profits, or if you often act in fear of missing out, your trading journal will shout that out to you. Your aim then should be to keep those mistakes in mind and evaluate your mental setup at the time of taking your next trade.
A good trading journal will also help track your trading metrics, which will be beneficial in several other aspects of trading, including trade management, stop loss setting, and position sizing. It will also help you avoid overtrading which exhausts and tires several new traders forcing them to leave trading.
As a trader, you make most of your money when you accomplish longevity in the markets. There is no shortcut to looking at thousands of charts and setups, and taking hundreds of trades to understand what works for you.
You must give yourself at least 2 years to make meaningful progress in trading.
While you are spending those years taking trades, you must ensure that you track your performance for future learning. You can’t just keep trading and making the same mistakes again and again. Keep track and improve your trading by eliminating one mistake at a time. If you do that, your learning and earning curve will look a lot steeper in trading.
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