As we have observed in recent years, many novice traders fall victim to the current fad stock or asset class, with cryptocurrencies serving as a prime example. Hysteria and false beliefs, such as "diamond hands" and "laser eyes," are used to "teach" retail traders to employ a "buy and hold" approach (i.e., don't sell).
But as Bitcoin dropped from its high of $68,999 in late 2017 to $32,970 just two months later, many small-time investors lost everything. In reality, on-chain analytics revealed that 880,000 cryptocurrency trades lost all of their equity on May 19, 2021 (a day of high volatility in the cryptocurrency market).
This is easier said than done, though, as we are constantly at odds with ourselves due to behavioral biases such as loss aversion, prospect theory, self-attribution, overtrading, and overconfidence.
Here are some key trading tips for new and aspiring traders.
1. Adopt the Trend:
A basic viewpoint won't make money; it needs to be supported by price action. Short-term traders often follow the trend by trading with the 5 or 20-day moving average. Similar criteria are also used by trend-following algorithms, which can lengthen the trend's duration (both in terms of price and time) and increase profits.
2. Exit losing positions by using a stop loss:
Always utilize a stop loss to get out of losing positions before they balloon into far larger losses.
A stop-loss is a level at which a trade should be abandoned if it is losing money. Although our basic analysis and trading strategy may be sound and profitable, we cannot predict when the market may react negatively to new information. Examples from history include a terrorist attack or a sudden central bank action. To effectively control risk, stopping losses are essential.
3. Never compromise for average:
If a market is heading against you, you should cut losses rather than add to a losing position because the losses will grow quickly. Small gains, smaller losses, and larger gains are all components of profitable trading.
4. Stay Patient:
Do not overtrade; rather, be patient. Annual returns for the 10% of traders who execute the most deals are 7% lower than for the 10% who execute the fewest trades.
5. Have a Process:
Excitement is for gamblers; trading and investing should be boring.
Follow the price action (trend) as it moves; this is the most popular trading strategy.
If you have a fundamental opinion about an asset, hold off on taking a position until price activity supports your hypothesis (with a stop loss attached, for risk management).
6. It’s a Human Endeavor:
It's frequently more crucial to comprehend mass psychology than it is to comprehend economics. Markets are influenced by both human errors on the part of some people and brilliant insights from other people.
7. Document Your Trades:
Keep a journal detailing all of your transactions. Why they were entered, the size of the position, the stop loss level, the location and rationale for taking a profit, as well as your thoughts and feelings.
Examine the outcomes and take note of your errors. You will discover a lot about your method, frame of mind, and approach.
8. Understand the Importance of Mental Capital:
There are two types of capital: mental and physical.
Mental capital is the more significant and expensive of the two types of capital.
Holding on to losing positions costs quantifiable amounts of money in the real world, but it costs incalculable amounts of money in the mind.
In the end, a combination of process, discipline, and risk management is the key to effective trading.
9. Choose the Right Stocks:
In order to execute trades via intraday trading, you must select the appropriate stocks. They should have a high liquidity level that makes it simple for you to exit your position.
Additionally, it is advised that you stay away from volatile stocks. Now, it is a known truth that intraday trading is influenced by stock price volatility.
Additionally, you can select equities that track the main market indices. By doing this, you may clearly understand market trends and make trades that are in line with those trends.
10. Remember to Close Your Open Positions:
Another vital piece of advice for intraday trading is to shut out all open positions before the day's trading is through. This means that you must sell the stocks even if they close below your target closing price in order to balance your position.
When stocks don't reach their goal price, some intraday traders prefer to take delivery of their equities. The stocks purchased during intraday trading might not produce desired outcomes the next day, so this practice is not advised. The
a trader becomes more vulnerable to overnight hazards as a result.
11. Keep Track of Resistance and Support Levels:
The initial 30 minutes of trading each day typically see some fluctuation in stock values. This time frame is known as the opening range, and the highest and lowest prices recorded during it are referred to as resistance and support levels.
These resistance and support levels might be watched in order to develop into a profitable intraday trader. Experts advise investors to buy equities if they rise over the opening high range and to sell them if they fall below the opening low range
12. Take the Help of Trading Indicators:
Moving averages, the RSI, Bollinger bands, the Commodity Channel Index, and the stochastic oscillator are a few of the most popular indicators utilized by intraday traders.
Final Word
As was previously noted, Trading is an art, and to perfect it, a trader must constantly learn new skills. To achieve in this sector, one must put in a lot of effort and be persistent and determined.
Because markets are constantly changing, none of the tactics that have been outlined are ideal. There is no tried-and-true formula for success since tomorrow's market will be different from the one we have today. Money management and trading psychology are essential for success. In a different module, this subject will be covered in greater detail.
We should continue experimenting with various strategies and hone our trading techniques because we are all unique. Losses are unavoidable when trading, so rather than being afraid of them, we should learn how to manage them.