Before we start

In this newsletter, I will go through some advice that helped me when I was starting my journey as a trader. These advices are not related to Technical analysis. These advice will come in handy for someone who has spent a few years in the market as well.

Some of the advice are obvious but important and some will give new perspective.

The 12 Advice

1. Know the basics of markets

2. Build a strong educational foundation

3. Risk management

4. Setting clear goal for yourself as a trader

5. Choosing the right broker

6. Starting small

1. Know the basics of markets.

Introduction to the markets is easy in this age of information. A random video on social media or a random ad on social media is enough to spark the curiosity. It is also possible that a person overhears a conversation about the markets in their social circle. This is okay. But jumping right to taking trades without knowing the workings of the market is a recipe for disaster.

As a beginner, one must always understand the workings of the market. What is a stock? What is an IPO? What happens when a buy/sell order is placed? How are the orders filled? What makes the price of a security move? What is a security exchange? And other such topics must be known by the beginner before taking a trade. The worst thing that can be done is taking trades based on a hunch.

2. Build a strong educational foundation

So, the basics of the markets are understood. But this isn’t enough for a person to take trades. Now comes the time to build a strong foundation. The reason a strong educational foundation is emphasized on is because all the future learnings will be built upon this. Markets are not just about buying and selling the stocks. It requires one to analyze the charts, know the patterns, interpret the indicators, understand market sentiment, understand the general economic health of the country, etc.

3. Risk Management

Risk management is the process that ensures that the profit that is earned can stays with the trader and is not lost to the market. To do this the trader must only bring in the capital that he/she can afford to lose. This also means avoiding bringing in borrowed money. Risk management also involves setting a limit to the risk per trade, per day and per strategy. If a trade is not meeting the criteria set, the trader must not take the trade.

At the end, trading is just like a business without any products. To become successful, the trader must monitor the losses and make sure they are not wiping out their capital. I have given great amount of emphasis in all my recorded courses and gave a plan of action on how to manage risk.

4. Setting a clear goal for you as a trader

A trader must set financial goal for themself. The goal can be quarterly or annually. The goal is a subjective topic. It is based on the reason for trading the markets. Some traders consider trading as a primary source of income. Some may consider it as a secondary source of income. The reason for trading will ultimately define what kind of strategy the trader would follow and what kind of goals they would set.

For example, if trading is considered as a primary source of income, then the goals will be relatively aggressive. However it as suggested that one should trade the markets part-time before jumping into this profession fulltime.

5. Choosing the right broker

Trading is not just buying or selling. Extensive research and analysis must be done prior to taking a trade. This analysis requires the right tools and charting methods. The right broker will be able to provide the trader with the right tools to analyze. This may include a range of charting methods, indicators, scanners, and option data analysis tools. These tools are essential for any analysis.

It is also desired that the broker doesn’t face frequent technical issues, calculation issues, and technical glitches. Although these are inevitable, they shouldn’t be frequent.

Most of tools I use are proprietary indicators of Definedge Securities. You can explore the tool here https://cutt.ly/B0idCiy

6. Starting Small

When starting out, always start small. The reason for this is twofold: the trader has less experience in chart analysis, pattern identification and decision making. The other reason being that because the positions are small and the capital is small, the amount lost if the trader faces loss will also be small. As the trader gains experience, the trader can increase the position size as well.

This is only part 1 of the advice for anyone starting in the market or has already spent some time in the markets. You will receive part 2 soon. So, stay tuned.