Tips For New Traders: What's Yours?

These are simple but they changed my trading immensely.  What tip (or 2) would you give to a new investor or trader?

How many times has this happened to you?  You're "in" a stock certain you're certain it's a winner.  You place a $1.00 stop because after all you don't want to lose more than $100. 

The next thing you know you're stopped out, only to see it reverse and head higher without you.  Was it your execution?  Is the market a rigged game?  Are they out to get you.....or was it the $100 you were willing to risk?  Was it, in fact, large enough?

Here are a few basics I've learned since I began actively trading:

  1. I don't buy a the open.  I wait for the opening drive to dip down, possibly even test the prior days mid-to low area OR I have a standing order waiting at a major moving average or fibonacci area (I love fibonacci!).
  2. I had to erase the thought of risking $1.00 on a trade (unless it's a small stock).  Period.  Zip.  Hands down. Put it out of my head.  After all, in any given week a $40 stock can pullback or fluctuate up/down 1-5% meaning (unless you're a rockstar at your entry) you're stopped out - and then it resumes heading higher with you in the dust. 

Now I use technical analysis in my trading but that alone doesn't guaranty one a winner.  While stops can limit losses, they actually work against you in many cases.  In fact, I finally stopped using stop orders altogether because MM (Market Markers) see your stop and when at all possible, they invariably reach out and slap you silly, hit your order (providing liquidity dontcha' know) then go about their merry way.

Sure your broker may have triggers and multiple layer orders such as OCA (one cancels another) orders but for my broker (AMTD) they're very inconveniently located at their website and not on my trading platform.  I have no time or patience for such silliness so I use Alerts.

I began using a 10% stop (less at times but almost always more than $1.00) and placing alerts (rather than actual stop orders) as soon as my trade was entered.  Alerts telling me when to take partial profits and when I was close to my stop out point.  Then I sit back...........and do absolutely nothing.  

My stress levels plummeted.  No longer do I worry about being stopped out.  My percentage of winners have skyrocketed and not because of QE lifting the markets (they went up before the credit crisis).  It's because time and time again MM couldn't reach out and grab me and I was no longer being taken out by a pullback.  My losers became few.  Again because my tolerance was wider, I stayed in the game.

Just where I placed my stops is an entirely different conversation but just staying in the game is an enormous struggle for young traders.  I encourage papertrading with these simple methods and see if your results, bottom line and stress levels improve.

I'm continually taking partials along the way; banking profits at fib levels.  No more watching a name reverse and thinking "damn, there go my profits" after the fact.   My winners are all waiting for a correction to re-add shares so come on Mr. Market; bring it. 

Sure my morning's can be a little crazy with bells ringing as Alerts are tripped at the open (or at the close for that matter) but my trading day is filled with research, common household tasks or running errands......and not watching my screens.  Less stress, oh yes, it's a wonderful thing.

What tips would you recommend to a novice trader?  What have you changed in your investment style?  What have you gotten rid of? 



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