With somewhere between 80% to 90% of traders losing money consistently in the long term and most new traders not even making it through the first year I thought ten tips on survival may help some of my new blog readers be in the markets this time next year. I have seen so many come and go over the years a few things can keep you in the game long enough to win Some new traders send one e-mail then when they realize it is work to trade they move on quickly to the next get rich quick scheme. Others want the magic formula to success and think that rich traders are all holding back that they have the “Holy Grail” in their possession but won’t share it. The truth is trading is like being an entrepreneur, taking risks, being rewarded when right, losing money when wrong. Profits come from the traders that lose money so you have to be on the right side at the right time to make money in the markets. The first steps are creating a quantified systematic process for profits, managing the size of your risk, ,and following your trading plan with discipline.
New Traders Survival Guide For The First Year:
- You need enough capital to trade so you do not take outsized risk because your account is too small. Focus on building your initial capital first, not going for big risk home run plays, you will lose money fast, add to your capital as you go, and grow it while you learn.
- Never lose more than 1% of your trading capital on any one trade. If this is not worth your trouble then you need to build your capital up before you continue. This refers to where to place stop losses so you minimize losses it does NOT refer to total position size and to trade with only 1% of your capital. It refers to how to manage your position size based on the volatility of the underlying asset at the location of your stop loss at the price level that shows you that the trade is invalid.
- Do not attempt to trade futures or options unless you fully understand how they work. It is too easy to lose a lot of money if you do not fully understand how they move and act.
- DO NOT trade illiquid markets in penny stocks, options, or even some stocks or futures, the bid/ask spreads will devour your account only the market makers win in illiquid markets.
- DO NOT use any trading service to learn to trade unless you talk to many people you trust that service and will endorse it.
- Find experienced traders to learn from whether in real life or social media, just watch how they operate and ask the right questions, but don’t bother them too much. Do enough homework so you know what good questions are.
- DO NOT even attempt to trade until you have a trading plan with a method that has a systematic approach.
- If you do not understand the probability of your risk of ruin based on your amount of risk exposure per trade do not trade until you do.
- Take all the time you need to get educated in trading before you ever place your first trade. If you have not put in some serious time reading good trading books, studying charts, back testing, and using all the free resources available online you should not trade any real money until you do. The market isn’t going any where and there is no rush to get into it until you are completely ready.
- Set specific goals with a timeline so you know where you are in your trading journey. Be realistic but stretch yourself. It is not about making money at first it is about work and effort to get you to that money. Once you get the right process, discipline, and risk management in place only time will separate you from profitable trading success.