What You MUST Know if you Started Trading Recently
What You MUST Know if you Started Trading Recently
Essential Tips for New Traders to Navigate the Markets Successfully
Hi everyone! In today's article, we discuss what you must know about stock trading in your first year. If you're new to trading, your first year will be eventful. If you're 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 during the choppy or downtrending markets that follow, you can lose all your profits and some capital too. If you start in a choppy or downtrending market, there's 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
.
Understanding Market Cycles
The first thing that you should know is that markets move through cycles. The financial markets often move in cycles known 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 you’re 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. Being aware of changing market conditions helps you stay in the game for the long run
Personalizing Your Trading Style
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 an appreciation of the market cycle. Some traders have a natural inclination towards taking significant risks, while others can’t sleep after just a few ticks down on a trade. This is why you must evaluate yourself while you're in the ring and change your trading style according to your own behavioral makeup.
Trading is Not Gambling
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. Worse yet, they’re taken aback 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, not a sprint. If you treat it as a sprint, you’ll 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.
Risk Management: The Holy Grail
The fourth important aspect is risk management, which is the Holy Grail of successful trading. Many traders think that winning in trading is about finding a magical setup that will help them win big again and again. In reality, good trading is about 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 incorporates 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 your eye is on risk, you can hope to be in the game for a long time.
In continuation of 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’ll 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.
The Importance of Record-Keeping
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 to avoid overtrading, which exhausts and tires many new traders, forcing them to leave trading altogether.
Longevity in Trading
As a trader, you make most of your money when you achieve 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 two years to make meaningful progress in trading. While you’re 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, both your learning and earning curves will look a lot steeper.
As always, thanks for reading. If you enjoyed this article, please consider subscribing to Momentum Alpha for more insights and tips on trading. Join our community and discuss trading strategies with like-minded individuals. Here's to a successful trading journey!
Become a Professional Funded Trader for Less Than $150/Month with These 4 Essential Tools
Ready to take your trading to the next level? Here’s how you can start building your trading career with minimal investment:
Subscribe to Momentum Alpha
Unlock expert trading insights for as low as $9/month (even less with an annual plan). Gain access to actionable trading setups that can help you make smarter decisions in the market.
Get Funded
Start trading with a remote stock prop firm that gives you $20,000 in buying power or more for just a one-time payment of $97. Trade The Pool is the best option to scale your trading.
Trade with the Best Charting Platform
Take your analysis to the next level with TradingView, the most powerful charting software available. Whether you’re a beginner or a pro, TradingView has the tools you need to succeed.
Analyze Your Trades and Improve Daily
Get better every day by reviewing your trades with the TraderSync Trading Journal. Learn from your wins and losses with detailed analytics. Check out the article I’ve written to see how TraderSync can elevate your trading performance.
With over 8 years of market experience, $20k spent on books and courses, and managing multiple six-figure portfolios, these are the tools I would use if I were starting my trading journey today.
Stop waiting and start your journey to becoming a professional funded trader now!
Disclaimer