My first year as a Stock Trader
In January 2020, I started my career as a stock trader with lots of hope and curiosity about the financial markets. Investing and trading were totally new to me. Also, I was totally unaware how COVID will turn our world upside down.
What a terrible year and what a terrible timing to enter the market!
In this one year I felt like I have seen everything; from market crash to bulls taking over and making new highs. I’m still learning and hopefully one day I will become a successful trader. However I also felt that it would be a great idea to pen down my (novice trader) experience and learnings so that all new traders can relate to it and also if possible learn from my mistakes. I’m not an expert in trading but below tips have really helped me in improving my trading methods and hope it will help you too. So let’s get started…
Stop loss will take you a long way:
I learnt this at the very beginning that keeping a stop loss in each trade is a must but still made the mistake of not keeping one.
In March 2020 when recession struck the entire market and all the stocks were going down, I had no idea what was happening. I was a novice trader who just thought that the market would go up and waited for my strategy to work without keeping SL. It led to a loss of 50% of the entire capital in a single trade. Luckily, I knew that I’m a beginner and had a capital of Rs 14000 only and my focus was just to learn and not make money but it still hit me hard as it took me months to break even from that loss.
I can’t emphasize enough how important it is to have a SL. Being a stock trader is all about discipline, and our emotions sometimes take the wrong route; therefore to stop our mind from playing games; it is really important that we keep the SL and obey it. We need to understand that keeping SL will protect our capital which will help us to stay in the market for a longer period which ultimately leads to more time for learning. Remember money makes more money, without capital there is no future in trading.
Risk Management:
No one can predict the market. In every trade there are 50–50 chances that the trade will end up being a profit or a loss. The trades we take are based on the assumptions we make about the market behavior, it is not a guarantee. This applies to everyone from a new trader like me to the experienced ones. However, what separates the experts from Novices is managing risk.
How you may ask?
Risk management refers to the practice of identifying potential risks in advance, analyzing them and taking precautionary steps to reduce the risk. For example if you have traded a capital of ₹1000 and you are planning to earn ₹100, you can’t keep the downside also to be ₹100 as this way your risk and reward is 1:1 which will make it difficult for you to make money as a downside and upside is the same. I personally prefer to have a risk and reward ratio of 1:2 which means that even if my trading accuracy is 50% only I will still be profitable.
Focus on the strategy not the earnings:
In my initial days whenever I used to make little profit, I used to exit the trade so that I didn’t lose whatever I had earned. It really worked in the first month of my trade. It also convinced me that my strategies were working but the truth was I never waited to see if my trade plan works. Letting your strategy reach its destination is a must, (It could be a target or SL) it shows us whether the strategy we follow is working for us, if not we can dig deeper and improve it.
As a trader our focus should be on learning the method, once we excel it, earnings will come.
Managing Emotions:
If you have a great strategy but cannot control your emotions you can never be a successful trader. For example; I have always lacked patience in trading which always made me take trade earlier than I should, which mostly led to hitting my SL. If we can control our emotions we have already won the half battle. Trading is a lot about Psychology, therefore we need to train our brain to be disciplined, patient and calm. We should avoid trading when our feelings are not in control. It could be feelings such as anger, sadness, overexcited, fear, greed, overconfidence etc. This will lead us to bad decision making and affect our trades.
Plan your Trade and Trade your Plan:
Earning in the market is not about being active during market hours, it is more about being active after market hours. It means once the market is closed we should start planning the trades for the next day. Planning ahead helps you avoid mistakes which might happen during active trading hours. It gives you enough time to check your strategies i.e. the entry point, target, stop losses etc. The market hours are only for executing the plan and accepting the result whatever it may be. Moreover, I have also noticed in my trades that whenever I plan it; I don’t panic at all and am very clear about my next action.
Trade Journal:
Journaling your trade is basically monitoring your performances. Recording your trades can give you insights about your previous trades and helps you review it for future reference. It might seem to be a tedious process but once you set up your trading journal it becomes very easy to manage. It helps us to improve our trades to a great extent as sometimes while trading we can’t figure out what is wrong with our trades however when you look back at your journal we get a detailed insight about our trading style. It helps give a lot of structure to our trades.
Market trend:
There are hundreds of trading strategies but nothing will work if the entire market trend is on the opposite side. You might have noticed that when the market start falling, the majority of stocks starts falling without any particular reason. There could be no news or fundamental changes in one particular stock but that’s how the market works. It simply works with the sentiments, if the majority of people think the market can go up; the market will go up and vice versa. Therefore following the trend is the best option to become a successful trader and never try to beat the trend. It might work a couple of times but certainly not for people who want to make a living in the stock market.
Single or Multiple strategies:
There is a universal debate among traders whether we should stick with single or multiple strategies. There are no correct answers for this but as a beginner trader myself I like to stick with 1 or 2 trading strategies. The idea is very simple, if I want to know which trading plan works for me I need to get more data on that particular plan. I can’t use multiple approaches in a small frame of time. It won’t give me a clear picture about the accuracy of all these plans. However, if you are an experienced trader, multiple strategies can also work for you as different plans work for different kinds of setup. For eg: if the market is bullish few strategies work really well, same during consolidation or bearish phase. To conclude it, beginners’ focus should be to learn 1 particular strategy and excel it and experienced traders can juggle between multiple strategies depending on the market trend.
Don’t overtrade:
When I was beginning my trading career I used to do 3 trades everyday. Don’t get me wrong, I didn’t intend to do minimum 3 trades, it just kept on happening. It seems I was trying to show myself that I’m working hard and the market is the one to blame here for not respecting my hard work. It took me a couple of months to realize that the market treats everyone equally (at least all retail traders). I can’t be successful in trading if my focus is to be in the market all the time.
Trading is a complete package of entering the market when the time is right and sitting on the bench till you find the next opportunity. I’ll be successful if I focus on quality rather than quantity. Many successful traders trade 2–3 times per month which is more than enough for them to get good returns. Overtrading might satisfy our ego but it certainly doesn’t improve us as a trader.
Create a checklist:
Having a checklist is one of my crucial tips for new traders and I have no doubt it will even help experienced traders as well. During our initial trades we all will make mistakes, few will be new mistakes and few we will repeat. Whatever the errors are, we will definitely learn from them. To make sure that I learn from these errors and minimize repeating it I came up with a checklist of all the mistakes I made myself in my past trades or learnt from somewhere. The idea is to go follow the checklist before taking any trades. Initially you might take a little extra time to go through the list, but one you keep on doing it; it will be easier to follow.
In Conclusion, these are the few takeaways from my first year of trading and I will keep on sharing more ideas and mistakes as my learning progresses. Hope this article will help you to be more disciplined and consistent in your trading.
Thanks for reading!
