If you are new to trading, it can be challenging to know where to start. There are so many different strategies and techniques that it can be hard to decide what will work best for you. In this blog post, we will outline 7 trading tips that are perfect for beginners. These tips will help you get started on the right foot and better understand how trading works. So read on whether you're just getting started or looking for additional advice!
1. Keep a pulse on the news.
In addition to basic market knowledge, traders should be interested in what's happening worldwide. You don't have to be a news junkie, but you should at least stay up-to-date on major events that could affect the markets. This can help you make better trading decisions and avoid potential pitfalls.
For instance, it can include the FED's interest rate changes, major political events, earnings reports, new product launches, and even natural disasters.
For example, in 2012, Facebook priced its IPO shares at $38, raising more than $16 billion, the largest tech IPO in history. It brought a lot of attention to social media stocks and tech stocks in general. Or in 2020, the outbreak of the Covid-19 pandemic resulted in a market crash as news predicted doomsday.
We suggest making a watchlist of assets you would like to trade. Keep informed about the chosen companies' reports, general market situation, and political events. Read business news daily from reliable sources like Bloomberg, Yahoo Finance, etc. Many website services, like ours, has a news section under each ticker that makes it even easier to follow the news related to the stocks on the watchlist.
2. Take your time...
Don't feel like you need to jump into trading right away. Taking your time, research, and understanding the market before making any trades is essential. This will help you avoid costly mistakes and set yourself up for success in the long run.
Speaking of time, you also need to understand that trading requires a time investment. Sure, you can find strategies that don't take too much time, but generally, trading is a long game. You will need to track the markets and signals that can come anytime during trading hours. Such observation allows you to respond to changes quickly or, on the contrary, find a good entry point and opportunity.
When you feel ready to start trading, make sure to start small. Don't put all your eggs in one basket, and don't invest more money than you can afford to lose.
3. Use simulations to practice.
One of the best ways to learn to trade is by using simulators. Simulations allow you to practice trading without putting any real money at risk. This is a great way to test different strategies and see what works best for you. Many trading simulators are available online — for example, the eToro broker platform simulator.
For price movements predictions, check the StockInvest.us predictions widget here: https://stockinvest.us/predictions
It is vital to initially perceive this not as a game but as a real action. This will help prepare you emotionally as well.
4. Avoid penny stocks.
Penny stocks are defined as stocks trading below $5 per share. They are generally considered to be high-risk investments.
This is because penny stocks are often highly volatile and can be challenging to trade. If you're a beginner, it's best to avoid penny stocks altogether. Even if it seems like a good way to make quick and easy money. There are plenty of other trading opportunities that don't involve such high risks.
5. Use stop-loss.
Stop-loss is an order you, as a trader, send to your broker to limit your loss on a specific trade. In other words, if the security price falls below the stop-loss price, the order is triggered and sold automatically.
This type of order can help you minimize losses and protect your profits. There is a wide range of stop-loss methods, while the most common are fixed or trailing.
- The fixed stop-loss is a given percent or amount/value under the buy price that will trigger an automated sell.
- The trailing stop-loss is a method where the stop-loss always follows the stock up, never down. If you, e.g., have set a -5% stop-loss, it will always be -5% below the highest stock price that occurs after you buy the share. Finding the right stop-loss value is often a matter of understanding the stock's behavioral pattern. This is often referred to as volatility, and you can read more about that here.
Stop-loss orders can be placed with most brokerages and are relatively simple to set up. In most cases, you select a type of stop-loss, then set the trigger price (the price the system will start selling your stock) and minimum price (often referred to as the actual stop-loss). If you're unsure how to do it, ask your broker for help.
6. Expectation vs. Reality.
Always be realistic about possible profits. In trading, as in any other activity, there will always be a gap between expectation and reality.
Your strategy can be theoretically solid, but the market doesn't always cooperate. Be prepared, and don't let emotions take over when trading. Even very successful traders have losses. For example, in 2015, in a letter to shareholders, Warren Buffett admitted that he had made a mistake on Tesco (TSCO), selling too late and costing Berkshire $444 million in losses.
Of course, you don't have to aim for such big numbers, but always remember that trading is risky, and there are no guaranteed profits.
The trading journey is long, and it's crucial to stay disciplined, patient, and humble. Remember that trading is a marathon, not a sprint. If you keep these things in mind, you'll be well on your way to success.
7. Keep calm and stick to your plan.
Trading can be an emotional roller coaster. It's essential to keep a level head and stick to your trading plan. Don't let emotions like fear or greed take over. If you do, you're more likely to make mistakes that can cost you money.
If you see that your plan does not work as you expected, don't hesitate to change it. But always remember to stick to your trading goals, no matter what.
It can be helpful to keep a trading journal. This is where you can document your trades, both good and bad. Such a method can help you track your progress and identify any areas that need improvement.
A trading journal can also be a valuable tool for helping you stay disciplined. By keeping track of your trades, you can see whether you're following your trading plan or not. If you're not, you can make the necessary changes to get back on track.
These are just a few trading tips for beginners. Of course, there's much more to learn to be successful in trading. But if you start with these seven tips, you'll be off to a good start.
Just remember, trading is risky, and there are no guarantees. So always be realistic about possible profits and losses. And stick to your trading plan, set stop losses, and learn.
Thank you for reading. If you are searching for trading tips and market analysis. Check our weekly stock and crypto podcast with Jim Stromberg.