This week's lesson.
Today I’m going to share some tips I wish I had known in the beginning that will benefit people as they find the correct way to start their career.
I started trading ETFs with only a couple hundred dollars before realizing that there’s a certain threshold within these stocks for me. I was trying to buy the low, sell the high, short the highs and then rebuy the lows, making me barely profitable with $20 to $30 gains per trade. By the end of each month, I made about $500, but because I was looking for heavier growth, I got into penny stocks.
Now, many people think penny stocks are a scam, and in the long run, that’s true. When you’re buying into penny stocks and holding long-term, 99% of those stocks drop to $0, but knowing that drop will come is what gives you an edge. When you short into a penny stock and expect the ticker to go to zero, you want to sell high and buy low because when the stock drops, that’s where you make money.
So the first tip I have is to save your money.
Many US brokers require you to have $25,000 to start an account, which allows you to avoid the PDT rule that applies to US citizens. However, some brokers have international accounts that void PDT and let you have a smaller account; it comes down to which brokers fits you best. When you’re just starting, it’s easy to stay within the rules because you don’t need to be overtrading, like I did. I used to place about 14 trades per day until I saw how much I was paying in commissions and realized how statistics could help me find my niche. Taking several months to develop your edge, staying within PDT regulations, and saving your money will help boost you into the next step.
The next tip I want to share relates to the rollercoaster of emotions you feel as a trader.
It comes naturally to compare yourself to other traders that may be making upwards of $100,000 per month. But remember, you are just a beginner that should be focused on personal growth and not someone else’s accomplishments. Many students think trading is easy and want to jump in full-time because of the potential profits, but that desire to make money can cloud your judgment. With the mentality to get rich quickly, new traders end up feeling like the stock market owes them, that each day they should be making money, and when that doesn’t happen, they force themselves into emotional spirals. I recommend trading part-time for beginners because it’s important still to have income you can rely on for life’s expenses.
When you put all of your eggs in one basket, the thought of your rent payment depending on a trade will only make you more uncomfortable with your choices.
And that brings me to my next tip, which is always to have backup funds.
It’s within human nature to make mistakes, just as a machine may have glitches. Sometimes we can prevent errors, but sometimes things just happen, and being prepared for the worst can help curve that potential blow. I have two, sometimes three, backup accounts that I’ve built from saving profit instead of looking at my whole profit as just another investment into the market. Instead, it’s an investment in yourself.
The fourth tip I have is to test strategies before using your money on them.
When you’re tracking a stock’s statistics, you want to find the frequency and the risk-reward of the pattern. Using that data can simulate what the stock may do and help perfect your entry and exit points. Many beginners subscribe to programs and apply those strategies without testing them first. If you’re expecting long-term gains without having samples to go off, you end up wasting your time and money on a strategy that doesn’t work. Fortunately, this can be avoided with research and observation that can support your first move when you feel ready to put your own money on the line.