These are the lessons learned of a newbie stock trader after 8 months in the game. I am not your financial advisor and these are my personal reflections; read this for your enjoyment.
First of all, don’t buy and sell on tiny a** gains. If you’re feeling tempted and have an itch for that sensation day trading bliss and excitement, set up a separate fractional shares account or set up a separate play budget. This way you can get a small dose of the trading high without risking your entire savings.
When it comes to my main trading portfolio here is the biggest lesson learned after being backhanded a couple times by the market. You will rarely win when negotiating with the market. So, don’t chase or run from prices by adjusting limit prices. Make your demands and hold your ground because the terms of this negotiation change all the time. Set a price and only adjust if the drops or rises are significant over more than a couple hours.
With that said, when the entire market or a major index drops 2–4% within a couple hours, or even a day, it will likely drop MORE. Hold off on buying. The last thing we want is to buy-in to every price point of a dip. Though this strategy can limit losses, it will remove the possibility of substantial gains. Again, you will never be able to predict the market, nor negotiate with it, rather the strategy should be in place and held onto regardless of win or lose. There are no full proof predictions, so learn how to read momentum, i.e. MACD and RSI. Go Google it, I ain’t gonna spoon feed you.
Now, if you have a bad strategy and you take significant losses. Emphasis on losses, not failure to capitalize and attain bigger wins, do not double down on your losing bet. A sore loser will be a winner.
It is said that the banks reflect the real state of the economy even if the rest of the market is trading outside of the financial valuations. Historically, the economy will often catch up (or down) to the real world economy. So surf the market waves, but keep an eye out on the banks and financials along with the news. To be fair, the stock market is all about human psychology and response. Human beings may be running on imagination, hopes, fears, illusions, and delusions, but ultimately the actual reality will come into play. Reality has a propensity of coming on top because it is matter-of-fact, and is not affected by emotions.
In conclusion, do not feed or buy into the need for self validation, whether that’s doubling down on unstable and failing stocks or selling at slight gains. Again, it’s a psychological game, both on a personal and communal level. It’s all about guessing at and reading the psychology of the other players, and understanding and metering your own psychology. The one who achieves the elusive balance of self-discipline, risk, and perspective will be a winning trader.
