1. Are you an investor or a trader?
As many people that are new to the stock market, I could pick any stock, preferably a company that I know and love, buy it and hold it for a long time with the hopes to make a lot of money. So this would make me an investor, not a trader.
The market loves you for being an investor, as all the market wants is your precious money. Professional traders also have invented the term ‘dumb money’ for retail stock market participants like us.
Now there is nothing wrong in being an investor as there are many professional investors that make plenty of money like Warren Buffett, the most successful investor ever. He made billions buying and holding popular companies like Coca Cola, Kraft Heinz, and many others. Did he all do this just because he loved the company or heard some good things about it?
The short answer is no he did not. Warren Buffett is a genius when it comes to analyzing a company’s fundamentals with all its nitty-gritty details. He puts weeks if not months into it.
So ask yourself this question: Are you doing your due diligence when it comes to analyzing a company? Do you have a degree in finance or a fantastic skill that helps you analyzing these companies? – I surely did not, and I had no interest in doing this. I could have listened to one of these analysts that tell you to buy a stock and hold it for a few years, but how could I remotely trust them to be unbiased?
After digging deeper into the world of technical analysis, I recognized very quickly that I wanted to move away from being a dumb investor and step into a more logical way of trading with day- and swing-trading. Even though I also struggled at first understanding this new way of trading (which you will see as you continue reading this article), I finally started to make money consistently.
- Commissions can rob you blind! I used brokers that charged me hundreds of dollars per trade. How could I possibly succeed like this? Those commissions made losing trades even worse.
- Don’t put yourself up with terrible charting tools! Charting tools need to be fluid, easy to handle, and help you to give a good overview of your trade. Bad charting software can make all the difference. I even caught myself using the tradingview.com charting tools to plan my trades just because they offered overall better tooling than my broker.
- Execution speed is king! Some brokers take several seconds to execute a trade, which you would agree, is very unfortunate. You could get filled at a terrible price depending on how fast the stock moves or even miss it as the price already passed your limit order.
- Lack of shares to short-sell! Having more options to trade stocks in the opposite direction helps you to not force trades against the trend. When I saw a stock moving down heavily, I always tried to catch the bottom just because I was not able to short the stock, which also made me lose money.