Discover the top 9 Best Practices for Beginners
who have just stepped in the field of Stock Trading. Learn how to build a solid
foundation, avoid common mistakes, and set yourself up for long-term success in
your first year of trading.
Table of Contents:
- Introduction
- Don’t Blame Others for Your Drawdown
- Your Trading Strategy Must Have an Edge
- Start Small, Grow Gradually
- Don’t Quit Your Job or Main Profession
- Understand Risk-Management
- Educate Yourself Thoroughly
- Don’t Tell Your Nearest Ones about Your Trading Endeavour
- Don’t Listen to Others
- Set Realistic Expectations
- Conclusion
- FAQs
Introduction
Are you someone who
has just started your journey in stock trading and want to know what are the
best practices professional traders adopt to be successful in the market?
Do they focus on discipline?
Do they have sound
trading strategy?
Do they have proper
control over their emotions?
Do they have perfect
risk management?
Well, let's have a
look there are 9 Best Practices that
successful traders do that others don't.
So, if you follow
these 9 things which we are going to share in this post, you will also be on
the right path and become a successful trader as your first year is about
learning and building a strong foundation for the future.
Let's get
started!
1. Don’t Blame Others for Your Drawdown
How do you feel when
one of your trade hits stop-loss and immediately after that reverse?
How do you feel when
you are incurring a series of losses?
You probably blame the
market, the broker, or the institutions for rigging the market. But this is not
the right mindset to think in that way to blame others for your losses.
Because, market
doesn't know who you are, it doesn't even know your existence. Market is a huge
playground with innumerable players, crores of transactions each day. So, there
is no logic for market to hurt you, because it doesn't care about you.
In the case of a
broker's intention, we can only say that if a broker is a reputed one it will
not hunt your stop-loss if it has been in this business for long time.
It is partially correct that the institutions with smart money can control the market for some
time because they have the edge over the retail players. To avoid these types
of negativities in the market you have only one choice to learn and educate yourself to have
an edge.
2. Your Trading Strategy Must Have an Edge
If you want to be a profitable trader your trading strategy must have an edge. So, what is an edge? In simple language, an edge is that thing which you practice consistently that will give you positive results.
You have a well-defined trading strategy. But after making a few trades you jump into another strategy not getting the expected results. This will not serve your purpose, To get the positive results you must use your strategy repeatedly for long time.
I am giving you the example of larger numbers. Suppose, if you toss a coin each time and it comes head you win 2 points, if it comes tail you win 1 point. If you toss the coin 1000 times and your wining rate is 50%, then who will win in the long run? Of course you.
So, it is important to say that without an edge your well-defined strategy will give you negative results in the long run. As the casino has the advantage of having an edge over the customers. If you want to be successful in the financial markets, your trading strategy must have an edge.
3. Start Small, Grow Gradually
Begin
with small investments and increase your exposure as you gain experience.
Jumping in with large sums can be tempting, but it's better to start slow and
build your skills over time. When you start trading, you will do mistakes due
to inexperience and little knowledge about the market. Whatever it may be, you must have to pay the
market its tuition fees. If you start with Rs,100000, and by chance lose the
full amount, then you won't have more surplus money to fund another account.
So
starting with a small capital is a logical job to continue in the market
even after losing that small amount. This way, you’ll learn from any early
mistake without taking big losses. Start small and scale up as you gain
confidence gradually.
4. Don’t’ Quit your Job or Main Profession
Here, I want to give you an example
of one of my close relatives. He entered into the stock market in 2018 and started
trading in futures and options (mostly in stock futures) without any prior
knowledge of the market. He started with Rs.2 lakh with a primary capital.
Within 6 months he doubled his capital to Rs.4 lakh.
Then he thought in this way that if
he could make his capital 2X in 6 months, so he could leave his job and wanted
to become a full time trader. So, he left his job and started trading as a fulltime trader. But after some time when the market turned other
way he lost all of his capital very fast. And then he came back to search for
his job again. What's the lesson in it? Earning money from the market for some
time doesn't mean that you would be able to do it consistently. So quitting job
is not the right thing to do, if you want to continue as a trader.
5. Understanding Risk- Management
Understanding
risk-management is having the skills to deploy protective measures to
protect your trading account. It is the most vital thing in trading to apply
proper risk management.
I am explaining how to
apply proper risk management in your trading. When you take a trade, first
thing you must know when and where to exit from a trade if the trade would not
run in your favor. You must have definite plan to keep a stop-loss whether on
percentage basis or closing basis, whatever your plans may be otherwise, your
account will be destroyed after some times.
After a proper exit
plan there is another vital thing of position sizing which is very important.
Keep your position size according to your stop-loss. Because, stop-loss and
position size are inter related. If you reduce your stop-loss, your position
size will be increased, and if you increase your stop-loss, your position size
should be decreased accordingly. Above all the key thing is not to lose more
than 1% of your trading capital. If you follow this relationship of stop-loss
and position size your trading account will not be destroyed.
Remember, there is no trend in the market that
sustains all the time, there is no such strategy which works all the time. Only
a stop-loss can save us in our bad times.
6. Educate Yourself Thoroughly
In your first year of
trading try to focus on learning everything. Learn as much as about the market
which you can get hands on. You will find many things known and unknown about
which you don't have knowledge.
Access knowledge about
"Different types of trading", learn about “Different types of
indicators." But focus on your own set up. Learn different things to gain
knowledge about the market. Go deep on few things which you require.
Once you learn about
different things about trading like chart patterns, indicators, and different
tools you will find yourself in a comfortable zone to select the right tools
for your strategy.
Every tool in the market has specific purpose.
Later you will
discover that 80% of things which you learned are unnecessary and the rest 20%
are relevant which will make you successful in future.
7. Don’t Tell Your Nearest Ones about Your
Trading endeavor
As a new trader with
no knowledge about the market it is better not to disclose to your nearest ones
(even your family)that you are a trader. Why? Because, when they know about
you, they will have basically two questions for you:
"Are you
making profits in trading"?
"How much
money you are earning per day"?
As a beginner you will
feel uncomfortable to answer them. It will depress your mindset and you
cannot trade with a strong and free mind which is most important in
trading.
But remember if you
are a profitable trader and consistently making money from trading, then go and
tell them proudly that you are a successful trader and you can spread your
knowledge to help them in their endeavors looking for a passive income.
8. Don’t Listen to Others
If you want to become
a better trader don't listen to others in taking trades or investment
decisions. First try to learn from zero, create your own trading strategy, keep
handy of substitute plans if one faces negative outcome, and this way slowly
make yourself ready for the business as trading is a business.
Don't pay attention to
any social media news about stocks recommendations or any big advertisement of
giving huge profits like 80%, 90%, 100% success rate strategies. Remember, only
10 % traders are successful in the market. So, no one can make you profitable,
only your dedicated learning mindset can make you a successful trader.
So don't hear to
anybody while trading, not even to your best friend. First, research your own,
find the right set up and analyze if the trade fits your defined strategy, then
go for it. You may be wrong sometimes, but will not lose the whole
account.
9. Set Realistic Expectations
Always remember,
trading requires patience and time. You know that Rome was not built in a day. Focus on learning process, profit will
automatically follow your process.
Some new comers think that they will learn a few chart patterns, some indicators and jump into the market and will start earning money. This is completely impossible in the stock market to think that way. They think that stock market is a get-rich-quick scheme. It is completely wrong thinking. It's a get- rich-slow scheme.
To become a doctor, an engineer, or an advocate
one requires minimum 4 to 5 years or more. Trading is also same. There are most
smart and intelligent businessmen involved in stock market with their highest
level of research and crores of money. So, it is wise not to fight against
them, instead we should follow them how they are making money. Give enough time
to your learning cycle, have a legitimate expectations which can make you a
successful trader in future.
Conclusion
Always remember that
your first year is the perfect time to learn and building a strong foundation
for your future. When you start trading with your own money, you will feel the
actual heat. So, stick to your own trading plan, follow proper risk-management,
and be a disciplined student of the market. By following the above 9 best
practices you will be on the right path to become a successful trader. Happy
reading, happy trading.
“TRADING IS THE HARDEST EASIEST MONEY TO MAKE”.
– RAYNER TEO
FAQs
1. How much capital do I need to start trading?
You
can start with as little or as much as you're comfortable with, but it's recommended
to begin with an amount you're willing to lose. Most beginner traders start
with $500 to $2,000.
2. Should I trade full-time in my first year?
It’s
better to trade part-time in the beginning while you learn the ropes. Full-time
trading comes with immense pressure, and it’s wise to build experience first.
3. How Can I Control My Emotions While
Trading?
Develop
a solid trading plan and stick to it. Avoid trading based on fear or
excitement. Meditation and mindfulness practices can also help manage emotions.
4. What’s the Best Type of Trading for Beginners?
Swing trading or positional trading is often recommended for
beginners because it allows more time to analyze the market compared to day
trading.
5. How Long Does it Take to Become a Profitable Trader?
This varies from person to person. Some might see progress
within a few months, while others may take years. Patience and continuous
learning are key.
Here
are some of the Best Resources for Beginners in Trading that
cover essential knowledge, strategies, and tools to help you get started:
Books:
"A Beginner’s Guide to the Stock Market" by Matthew
Kratter
A
great introductory book for anyone new to trading, covering the basics of stock
trading, market analysis, and common strategies.
"How to Make Money in Stocks" by William J. O’Neil
This
book provides timeless principles on investing, stock selection, and
understanding market trends, ideal for beginners.
Trading for a Living" by Dr. Alexander Elder
Focuses
on technical analysis, trading psychology, and risk management—key elements for
any new trader to understand trading in stock market.
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
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A Logical Guide To Risk Management In Stock Market
