Tip 1: Deciding on a Trading Style That Fits You!

Daytrading

This is the trading form that beginners tend to focus on the most.

Swing Trading

Swing trading is a more slow-paced trading form where you hold on to your positions for one day to a few weeks at most. In other words, a swing trader attempts to catch the short to medium-term price swings.

For beginners, swing trading is the ultimate trading form since it takes very little time and can be executed even by those who have a full-time job, while still having great profit potential.

Position Trading

This is a trading form that’s even slower than swing trading. A typical position trader holds his positions from a couple of weeks, up to several months or even years. This means that they’re attempting to catch the really long trends in the market, and use mainly trend following strategies.

Position trading, just as swing trading, takes very little time to execute, and could easily be combined with a full-time job. Thus, it’s a great trading form for beginners!

Algorithmic Trading

The last trading form that we’ll cover is Deciding which trading form that’s right for you.

Having been presented with four different trading styles, you may wonder which one suits you best. After all, the trading style you should go for is highly dependant on your personal preferences, as well as the goals you have set as a trader

Tip 2: Deciding What Securities You Want to Trade

Stocks/ETFs

Futures

CFDs, which stands for “contracts for difference” are similar to futures in some respects but very different in others.

Tip 3: Choosing a Broker

1. Compare commissions and transactional fees

2. Watch out for account minimums

Some brokers may demand a minimum initial investment, like $500 or $1000, which could be an issue if you’re looking to start off with a small amount.

3. Pay attention to account fees

Even though it might not be possible to completely avoid all account fees, you should definitely make your best to minimize them as much as possible. For instance, many brokers will charge a fee for basic operations, like closing your account or transferring funds out of your account.

Here are some common fees that you should look up before going with a broker:

• Annual fees

• inactivity fees

• Subscriptions for market data

• Trading platforms subscriptions

As you see, there are quite a lot of fees that brokers could charge you if you don’t pay proper attention!

3. Consider your need for trading technology and education

If the trading platform is important to you, you should definitely have a look around to see what the different brokers offer. Although the platforms often are available even to those who don’t hold an account with the broker, there usually is a quite high monthly fee that you want to avoid.

Another key consideration is the educational resources that are available. Many brokers try to make their services as compelling as possible for newcomers to the market by providing extensive libraries of educational material.

Tip 4: Getting Familiar with the Different Order Types

Different Order Types

Once you have a trading account up and running, it’s time to understand the different order types that you’ll be using.

The four most common order types, which are

• Market orders

• Stop orders

• Limit orders

• Stop Limit Orders

Market Orders

Market orders are the most common order types and essentially are orders to buy or sell at the closest price offered by the market. If you click the buy or sell button without making any configurations to your order, this is the order type you’ll be using.

Stop Orders

A stop order is an order that will stay in the market until the price reaches the specified stop level. Once it does, it will be turned into a market order.

So if the market trades at $100, and we issue a buy stop order with the stop level set at $110, then the order will turn into a market order as soon as the price reaches $110.

Limit Orders

A limit order is an order type that only will be executed at the limit price or better.

So, if we issue a buy limit order with a limit price at $120, then we’ll only buy the security at $120 or lower.

Similarly, if we issue a sell limit order with the limit price at $120, we’ll only sell the security at $120 or higher.

Stop Limit Orders

The stop-limit order is a combination of the stop and limit order types.

In essence, it means that you place a stop order which won’t be turned into a market order once the stop level is hit, but a limit order.

So, if we have a sell stop limit order with the stop level set at $115, and a limit level at $110, it means that a limit order to buy at $110 or higher will be issued once the market goes down to $115.

With a stop limit order you have more control over the price at which your order is going to be filled.

Tip 5: Developing/Finding a Trading Strategy

• Developing a Trading Strategy

This is the biggest and most important challenge that you’ll have to overcome as a trader. Without a profitable trading strategy, you have a very little chance of success, and will most likely end up as a losing trader.

Expressed in another way, you could say that trading without a proven strategy is like gambling. And as traders, gambling is the very last thing we want to spend our time doing, since it doesn’t have a positive expectancy.

In fact, most traders don’t have a winning trading strategy, which is one of the main reasons why as many as 90% or more of all traders fail!

So, what does it take to not fall into that category? What must you do differently?

Well, you have to validate the patterns and ideas you attempt to trade. Most traders never do this, and end up believing in strategies and patterns that have no edge whatsoever!

How to validate a strategy

To ensure that a strategy works, you could go about in three ways.

• You can paper trade the strategy for some time, and see how it fares

• You may use historical data to manually place trades as they would have occurred historically.

• Or, you could use backtesting software to simulate the historical performance of your strategy.

The last option of the three is by far the most effective approach, simply because it takes so little time. Having to go through a strategy manually indeed is time-consuming, and learning a good coding language, like Easylanguage, will free up a lot of time that could be spent on more productive tasks.

With backtesting, as soon as you’ve coded up your strategy, you’ll press a button, and get a performance report like the one below. This makes it possible to discard an idea if it doesn’t show any merit, rather than spending many months or years paper trading something that doesn’t work!

• Trading Strategy

However, even if backtesting still is one of the best tools you can use as a trader, it’s worthless if you don’t know how to use it correctly.

Many new traders believe that they may just start trading anything that works well in the backtest. After all, it HAS worked well in the past, so why not trade it?

Well, it’s here the issue of curve fitting comes into play.

What is curve fitting?

In short, curve fitting means that what you observe in the markets may just be the result of pure randomness. In fact, most market action is completely random, and can’t be used to trade successfully. Only a small portion of all the data out there is “true” market behavior, that can be used to build successful trading strategies.

Three Simple steps to building a trading strategy

• Come up with an idea

• Test the idea with any of the three methods just mentioned.

• Validate the idea, to ensure that it’s not curve fit.

Tip 6: Learn How to Protect Your Capital

• Money Management

When some traders finally have found a trading strategy, they believe they’re all set. The only thing they need to do is to take on as big trades as their account balance allows, and collect the profits.

Now, those who take this approach haven’t understood one aspect of trading which is as important as having a good trading strategy

It's about risk management!

Why Risk Management is important

All trading strategies, regardless of how good they are, will have their losing streaks and bad periods. And as if that wasn’t enough, all trading strategies are going to fail eventually, as markets constantly change and make old concepts go out of sync with the market.

Due to these reasons, it’s paramount that you make sure to never risk too much of your account balance on a trade. Otherwise, you risk getting wiped out as you enter a losing streak, or get into a significant drawdown that’s hard to recover from.

One essential thing to realize here is the returns that are required to get back to breakeven increase faster the more money you lose.

For example, to recover from a 20% loss, you’ll need a return of 25%.

However, to recover from a 50% loss, you’ll need a massive return of 100%.

This is why it’s so important to limit your potential losses to not get into too big drawdown.

So how can you prevent these kinds of massive losses from occurring in the first place?

Here are a few tips that will help!

1. Always use a stop loss

It’s essential that you always control the maximum amount that you’re willing to risk on each trade. If you don’t, losses may add up quickly and get you into those big drawdowns that are so hard to recover from.

So, what is a stop loss?

Basically, a stop loss is a stop order that’s placed at a certain distance away from the entry. As soon as the market hits the stop level, a market order will be issued and you’ll be brought out of the trade.

Typically you should place the stop loss so that you never risk more than around 2% of the account on every single trade.

So if you have $100, and buy one stock priced at $50, the farthest distance from the entry you should place your stop is $4, or at the $46 level.

2. Start small

When starting out as a new trader, you should consider trading smaller positions to reduce the impact of the inevitable mistakes you’ll make as a beginner. This might mean capping the maximum risk per trade to 0,5% or even lower.

Then, as you gain more experience you may increase your position size up to around the 2% mark we just discussed.

3. Trade several strategies

Although it might seem hard to even find one strategy when you’re starting out, it still remains a fact that trading several trading strategies is a great way to reduce your risk level.

The reason is that different strategies tend to be uncorrelated, which means that their losing periods are not likely to occur at the same time. Thus, as one strategy produces several losses the other one might compensate by producing several winners, and the other way around. This creates a more even equity curve and is one of the reasons why we at The Robust Trader focus mostly on algorithmic trading, where we can trade as many as 100 trading strategies at the same time.

Another reason is that two separate trading strategies aren’t likely to fail at the same time. Even though most educators won’t want to tell you that all trading strategies have a limited life-span, that’s the harsh truth we’ll have to deal with as traders.

Final Tips for Beginners

1. Always keep a trading journal

While keeping a trading journal might not sound like the most exciting idea, but by keeping a journal with your mistakes, a log of your emotional state, and what went well, you can come back and analyze yourself and your trading results. Soon you’ll definitely start to notice patterns and aspects of your trading that need to be worked on.

2. Be Careful who you trust

The trading world is littered with false vendors that sell the dream, without even knowing how to trade themselves. Especially youtube and Rumble is full of fake traders that promise riches to the masses if you just follow their specific advice. A lot of beginners tend to fall for these types of trading scams.

To trust a trading vendor, you, first of all, want to make sure that they trade their own money. Showing trades in hindsight can be done by anybody, and doesn’t prove anything.

A good thing to look out for is if they’re offering a holy grail. That is, the one single trading strategy that will bring an end to all losses, and let you trade happily ever thereafter.

If anybody makes such a claim, you can be 100% confident that they’re either a scam or use unethical methods to sell you their training material. Trading is hard and no trading strategy will last forever. That’s the simple truth that no trader, regardless of proficiency, can escape.

3. Take a course

Learning trading by yourself as a beginner can be a daunting task. And judging by the statistics, most people, unfortunately, are going to fail.

By taking a proper trading course, you’ll be on the right track right from the beginning, learning from people who already are where you want to be.

Of course, you should always do your due diligence before spending any money on a course. As we just mentioned the trading business is littered with people who want nothing but your money and offer nothing in return.