5 Things I Wish I Knew Before Starting Trading
I am a full-time Software Engineer and a part-time Writer and I decided to start learning day trading and in this story, I wanted to share some of the lessons I have learned and I wished somebody would have told me before I started day trading. I am sharing my learnings and experiences for educating you so that you don’t make the same mistakes as I did.
1. Start Small
When I started trading the mindset I had was that if I put in more money into a trade that means instead of buying 1 lot if I buy 5 lots my profit would also be 5 times.
This led to me going all-in in my trades and it backfired.
We, humans, are an emotional being and when our money is on the line, we get even more emotional and start acting vulnerable and desperate which leads to us making even more stupid decisions.
Emotion is different when you are trading small, and is much different when you are trading all-in.
I literally can feel and hear my heart pumping blood through all my veins when I have entered a trade with big money.
When you start small, you are less vulnerable to losing big and your emotions are much in control which will help you make the right trading decisions.
The lesson is to Start Small if you are new to trading, don’t come with the mindset of doubling your money in small time.
2. Wishful Thinking
We, humans, want to be right all the time, who wants to be wrong?
When the trade starts going against us, we keep the hope that it will go up and you will make a profit, or you will at least exit at break-even so that you don’t make any loss.
You pray for candles to turn green even though the market might be totally against your expectations.
When your trade goes against you, you start fighting the market by putting in more money at the falling prices thinking it will go up and most of the time it doesn't and you end up losing money.
3. Focus on Risk and not on Profit
Your focus shouldn’t be on making big profits but minimizing your losses. We take a trade when we feel it will give some profit so why put more focus on profit?
You have done your calculations for profit and then only you enter a trade. After your entered your trade, your mindset should be on minimizing the loss (if it occurs).
Trading works against human nature and against human behavior.
Here is the fact, in trading, nobody can be right 100% of the time. So you will be wrong at times, and the strategy is when you are wrong, your losses should be minimum.
To minimize your losses, you should exit the trade quickly instead of keeping false hopes. It's really uncomfortable but is always the right thing to do.
There is something called a Risk-Reward ratio which says that if your risk is x then your profit should at least be 2x. Experienced traders go for 1:3 and higher also but as beginners stick to 1:2.
Here is how Risk-Reward is the holy grail strategy:
If the major number of your trades fail, do read the last point in this story.
4. Stick to one Method
Like I have said so far, there is no holy grail strategy in trading. Any strategy can fail at any day and at any time.
If you have a strategy that works 50% of the time then it’s a good strategy. Here is how:
When my one strategy used to fail, I used to think that strategy doesn’t work and used to jump to another strategy.
As long as one strategy used to give me profits, I used to think its a good strategy, and the day it hits my Stoploss, I used to think that strategy doesn’t work.
5. You don’t have to recover your losses the same day
I used to think that if I made a loss in the morning, I have to recover it the same day. As beginners, when we trade with the mindset of recovering the loss we get impatient and undisciplined.
We break our own trading rules which only leads to disaster. The market is always waiting for you to break your own trading rules and will wipe your account very soon.
The market will open again! You can trade the next day with a better mindset, patience, and discipline.
As beginners, you can follow the 2 Stoploss a day rule according to which if you hit 2 stop losses during your trading day, close your trading setup, and walk away. Else, you are bound to make poor decisions and end up making more losses.
When you make a profit, Do you owe anything to the market? No!
Similarly, when you make a loss, the market doesn’t owe you anything.
The profit you make is because of yourself and you only owe the money you lose to yourself.
So remember, when you make a loss:
- Firstly, you don’t have to recover it the same day
- Secondly, you don’t have to recover that money from the market itself. You can invest your time into one of your side gigs may be to recover the loss you made from the market.
Also, don’t put your primary source of income into your trading account. Worst case — Put only 10% of your monthly primary income into your trading account.
6. Bonus Lesson — Knowledge and Experience is the Key
Here is a bonus lesson for you since you stayed so long to read and learn:
In Stock Market, People with money gain experience and people with experience gain money.
Trading is not gambling unless you make it like one.
It’s just another profession for which you have to gain knowledge, experience, and discipline to become successful.
Here are few things you should know to get started or If you are losing in the majority of your trades do invest more time into learning:
- How to read charts?
- Supply and Demand — Support and Resistance.
- Price Action.
- Risk Management.
Stay patient and do keep investing in yourself to become a better trader.
Thank you for reading this piece and hope you enjoyed and found this story valuable! See ya soon!