What is the best beginner trading advice you would give yourself? A common question I get…
The answer may surprise you. It’s most likely the answer you don’t want to hear.
You probably want to hear about the money you can earn stock trading. If you buy a “how to trade stocks” book, you skip to the entry signal chapter. After all, perfectly timed entries create winning stock trades.
Well, to put it bluntly the answer is no.
Sure, improving your entry skills is important. You need to understand bull flags, inside candlesticks and breakout trades. You need to understand support and resistance. You need to know how to set a correct stop-loss and how to set a profit target.
These are all a part of technical analysis. But they are secondary tactics. Successful trading starts with strategy and money management. Only then do you move to tactics. A great entry into a low-probability trade is still a low-probability trade.
Correct Stock Trading Advice for Beginners
Setting trading goals is important, and the top goal is to gain experience. Beginner stock traders need to learn how to preserve capital while learning. To gain experience means you have trading scars. Both financially and emotionally. Simulated trading does not count.
Your first goal of “experience” can seem like a fuzzy destination but it means you “understand” what is happening in the stock market and you know what to do.
You can’t gain experience just watching, you need to trade, to learn how to trade.
If preserving capital on the road to experience is the first goal, then the second trading goal is to learn how to maximize winning trades. Beginner traders tend to book profits early. Validation of your trading skills happens when you make money. When you ring the register you feel good.
But the truth is, there are different trading environments. The same as different driving conditions. Sometimes you can drive on cruise control, and sometimes you are in stop-and-go traffic. Stock trading beginners need to learn the difference, and then trade the conditions.
Sometimes you are in a momentum trading mode, where you book profits when a stock consolidates. Sometimes you add to a trade when your stock consolidates.
My Best Beginner Trading Advice
All of the above trading skills and market conditions are secondary to finding a great idea. Before you place your first stock trade, and then every day after, learn how to spot institutional order flow.
Order flow is the tens of millions of dollars that move a stock higher or lower. Stock traders, should learn first, how to identify when the big money, the smart money is active. This means you interpret the price action on the charts in a deeper way than simply say “trend following.” If you hope, want and desire to be a profitable stock trader, this is my advice. This is where to start.
Learn to read the relationship between price action and volume. Then you learn to read if a stock is “well-bid or offered.” You learn, if a stock is over-bought or over-sold without using indicators.
Order flow means you have a clear answer to these questions: Are buyers or sellers clearly in charge? Does the stock have “room to go” and is it enough profit potential to justify accepting risk?
Only when you can answer these questions without hesitating, should you consider the other other trading tactics mentioned. To move down the trader path, to move from beginner trader to experienced trader, you should only risk your hard-earned money on great ideas. Great stock trading ideas have obvious order flow.
When you can spot and trade order flow, you reduce the mediocre trades that bleed your account dry. When you conquer this powerful trading concept, you expect to make money.
There is no better feeling in the world for a stock trader. Today’s podcast shows you the passion, belief and enthusiasm for trading you can expect to have when you finally “get it.”
Download this podcast below.