Stepping Into The Stock Market
With the current COVID pandemic and the fact many individuals are finding themselves staying at home, on furlough, or unfortunately even jobless, many new traders/investors have ventured into the stock market in recent weeks, we have seen lots of new money and accounts join the market.
You will surely have heard all sorts of tales and stories of how a few individuals have turned a small amount of cash into a fortune, but it's also likely you've heard that 95% of all traders lose out in the market.
Both sides of the stories are true, but as the stats show, we are more likely to lose than to make money in the market! Do not let statistics put you off, 95% of traders might be losing money in the market, but that does not mean that you only have a 5% chance to make money.
There are no secrets to success, however there are many formulas. Your role is to find the one that works for you, know yourself, your strengths and improve them. Know your limits and weaknesses, expand and work on them.
Build a set of tools to increase the odds of success. Be disciplined and apply simple yet efficient techniques to stack the odds in your favour, because the stock market is nothing more than a game of probabilities.
I have split this write up into several sections which cover; conditioning, preparing the mindset and building foundations. Then we will cover different strategies, methods and tools. The idea behind this is to lay down solid and strong foundations, that you can build a strategy on, so if there are any earthquakes you won't wobble and crumble.
You could have the best strategy but be mentally unprepared. In this case you will end up seeing the trades but not have the strength to take them and execute, or even worse mess them up and find yourself stuck in a losing position. Or you could be mentally prepared but have no strategy! Then you will find yourself fighting battles you can't win.
Embrace the cycle, be prepared mentally, have a strategy, learn, expand, review and evolve.
Building The Foundations
"The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails." William Arthur Ward
It all started with a VISION, you wouldn't be trading/investing in the market if you didn't have a vision of where you want to be. Your vision is driven by your need which is derived from your why. Just ask yourself, why you are doing this? Once you know your why, you need to figure out your how. The greater your why, the greater your drive, so aim big and keep it in focus.
Action 1: Handwrite (and I mean put pen to paper) your vision, why you doing this, what are you trying to achieve and what can you do to help you achieve it.
Example: For the purpose of this write up, I will use "seeing yourself living in a bigger house" as your vision. Maybe have a look on home websites for the sort of home you would like to see yourself living in. This will help you to see your vision more vividly and also set a monetary target. This example will follow us all along and I hope it will help explain each step with clarity.
Note: There is wisdom behind handwriting things, handwriting creates a neural brain connection, use that inner power. Leave nothing to chance.
"There is nothing in a caterpillar that tells you it's going to be a butterfly" Buckminster Fuller
Would you be trading/investing in the market if you believed you're going to lose money? You surely joined the market with the belief that you will be able to trade and make money! Maybe you are not seeing results yet. Especially in this market turmoil, the constant swings, the COVID pandemic, the trade war tensions, oil price fluctuations etc.
So before you take on trading or investing you must believe deep down that you will succeed, do not fake it, believe it with every single brain cell you have, believe that you will see success - be it this week, next month or in the near future. You need to believe that things will work out, not because you are great or good at trading now, but because you know that with the right foundations, putting in the effort, time, energy, and consistency good results will follow and things will start to come good for you.
Action 2: Go back to your handwritten vision, see yourself living it. Believe it will happen and remind yourself daily why you are doing this, who you doing it for, and what outcome you want.
Example: Your vision is that you and your family can move to a bigger house, believe that it can happen and that it will happen to you. Never lose sight of your destination, it will give you strength when the tough times arrive and will keep you on track when the good times are on.
If is of great importance to know and identify where we are, what we are doing right and what we are doing wrong. Awareness is the first step to change, if we are not aware of what we are doing, why we are doing it, we can't change or improve.
We humans do not like criticism or putting ourselves under the microscope, but it is crucial to do so if you are an investor/trader, either that, or we get crucified by the market.
Handwrite what you are doing now, all the trades you took, why you took them and how they turned out. Identify what went wrong, and how you could fix that, it is key to identify what needs to change, what you need to improve on, as well as to identify what is working for you.
Remember if you keep doing what you always did, you will always get what you always had. It is also important to keep in mind that previous failures have no impact on who you can be in the future. So remove the chains of the past and free yourself and your mind.
Identify what you are doing, Identify what's working and what isn't, why you are doing it and how you can improve it, accept it and take full responsibility for it. By doing so you free yourself from all negative emotions and put yourself in the driving seat.
Action 3: Write down what you are doing now, why you are doing it (could be due to greed, could be FOMO, or just impulse etc), how could you improve it if you were going to do it again? What would you do differently?
Set yourself some realistic goals and yes - handwrite them; if you know what you plan to achieve from the market, it's easier to achieve. Make sure the goals are achievable, quantifiable and have a set time frame. This is an important step, you can easily find yourself running up and down the field with no goals to aim for. When you set yourself some goals you are more likely to stick to your strategies in the future and remain disciplined.
There is no point running up and down the field if you are not aiming for a goal! Would you play football/rugby without having goals? Do you enjoy watching football or rugby if there are no goal posts? The same applies to the stock market and life for that matter.
Action 4: Write down your goals towards achieving your vision. They need to be achievable, quantifiable, set a time frame for the goal (this will be key in helping you fine tune your strategy).
Example: Your goal should be saving for a house deposit within 18 months - it is both quantifiable, achievable and doable in terms of a time frame, other people did it so why not you? The goal is also aligned with your vision.
The biggest issue that you will face, is to remain focused, take control of your focus.
Focus on what you can control, not what you can't. Focus on what you have, not what is missing. Focus on what you are grateful for. Focus on the future and the present, not the past. Just like when driving a car you always look ahead, whilst being in the present, with an occasional look in the rear mirror. You would never drive only looking in the rear view mirror. Its a recipe for disaster.
The main benefit of focus is to help you change your state, which will help you change your story. Do not ignore it.
Another way to remain focused is to not follow others blindly and get distracted by other traders successes, failures, trades or investments decisions. It is easy to focus on what others are doing and lose sight of what you need to do. People have different risk tolerances and strategies, you don't know the full story behind their trade/investment decision or their portfolio risk management. Nor do you have an overview of their investments. If someone is invested for the long run, whereas you are looking for a quick trade, you could end up joining them as a long term holder too if the trade goes against you in the short term.
Don't let anyone rush you with their timeline, you need to do what is right for you at your own pace, your own time and with your own risk tolerance.
This is your journey, do not let anyone else hold the pen and write down your story for you. Stay focused!
Action 5: Focus on your goals, vision and remind yourself of them daily, this way you are always looking to the future and the opportunities instead of ones you missed, the ones you lost on and what happened in the past. Learn from the past but do not dwell in it.
Example: As you are moving on and saving more towards the house deposit. Never lose sight of the goal, don't take reckless gambles to lose it on a whim punt or just following others blindly. Stay focused and remind yourself why you started all this.
Note: Watch everyone to learn, but do not fall into the trap of peer pressure to buy what everyone else is. Keep your thoughts and emotions in check. If you feel like pressure is mounting or feel confused take a walk. It is best to miss an opportunity than to actually lose on a trade taken due to peer pressure.
One aspect of success is discipline and consistency, and there is no better way to remain disciplined than by building some good habits.
As humans we like to follow patterns, so we trade out of habit. If we have learned and picked up bad habits we need to unlearn them before we can learn new good habits.
A wise man once said "Bad habits are easy to learn but hard to live with, good habits are hard to learn, but easy to live with" so let's not neglect this very important point and focus on it. The good news is, building new good habits is achievable and it will change your trading ability. Building the good habits will help you remain disciplined and following your trading strategy. Combine that with a positive attitude and a positive mind and you will find yourself winning. Maybe not every trade will be successful, but overall most of the trades will end up making a return.
For example, if you are training to get fitter you may not notice results in one session however if you stick to your training plan and execute it to the letter, you will see results. By consistently repeating the training programme daily and feeding your body healthy food you are advancing towards your goals and building the habits that will see you becoming more disciplined.
The same applies to trading.
Action 6: Build the habits to talk positively to yourself, build the habit of executing your strategy to the letter. Don't get distracted by greed or fear - do not prophesy defeat. Focus on the positives and on where you want to go.
Example: Build the habits of talking positively to yourself, reminding yourself of that big house and taking money into your savings account every time you make a profitable trade to help you save towards your house deposit.
Note: According to the European Journal of Social Psychology, it takes 66 days for a habit to reach the point of automaticity. So keep at it, watch your thoughts and actions, make a mental note of what you are doing and if they are consistent with your new habits.
Write down a strategy, or a plan on how to achieve your goal. A step by step strategy that you can follow. It doesn't have to be complex, it doesn't have to be an overwhelming mathematically complicated formula like many might try and make you believe. Neither does it have to be based on some inner knowledge that one can only acquire if he has been meditating for 3 years in a cave.
Strategies can be simple and easy to follow, you can base it on Technical Analysis (TA), Fundamental Analysis (FA), sentiment, momentum, or a combination of all of them, sometimes it can be based on market understanding alone, but fine tuned by TA or FA (I will cover these in details later on).
Either you go for compounding your winners via multiple 5-10% trades, or by finding that little gem that can multibag over time.
Find a strategy that suits your needs and you can fit around your life. There is not a one and unique magic way to make money from the market, there are many ways and they are all as valid, either making swing trades or holding on for bigger gains, do what you feel comfortable with and what fits around your life and needs.
You also need to be clinical in your decision making, don't be overly positive or bullish, nor way too negative about investing, you need to stop your emotions running your trades.
Remember nothing goes up in a straight line despite how good they are, if you are holding on for long term, you will get tested, you will be shaken and have doubts, but if you believe in the prospect, none of the fundamentals have changed such that it requires your attention or for you to exit your investment, then remain steadfast. Whereas if you are entering a day trade remain disciplined and follow your strategy. This is where building good habits will give you the confidence to execute.
Action 7: Have a look/read at the following books on strategies, charting and general investing ideas, this is not an exhaustive list of books but some that will definitely get you going (for more books visit the Library page).
-The Art of Execution by Lee Freeman-Shor
-All About Stock Market Strategies by David Brown and Kassandra Bentley
-Profiting from Market Trends by Tina Logan
-Technical Analysis of Stock Trends by Robert D. Edwards and John Magee
Example: Your strategy should be built around achieving your goal, you can't expect to aim for a house deposit within 18 months if you are investing money into a 0.5% yield, but your role here is to find a balance between risk tolerance and also reaching the goal you are aiming for.
Note: There will be more on strategies on the upcoming blogs (stay tuned). This section is merely pointing out so you can get started.
There are a few tools you need to have if you would like to succeed as a trader and increase the odds by seeing a clearer picture of the market.
Look out for the best broker around, you want a reliable, easy to use yet cheap service when it comes to trading, ideally open a tax free ISA account, so that all your gains are tax exempt.
You need a charting tool, there are plenty of charting tools available, so make sure you examine all possibilities before you commit to one.
Level 2 or Live prices
I would suggest finding a good and reliable Level 2, any good trader will tell you you require Level 2, it is worth its money. I personally prefer using a Level 2 alongside the RSP as it gives a better view on market depth.
If you are looking for something that can show live prices, there is a free app by Investing.com where you can get live prices.
Find a good RNS alert app or website, there are a few around that offer good services, so make sure you have a good look. It might be worth using one or two in case there are any technical issues in the future.
Keep a record of your trades, entry price, amount of shares, time, date, and reason why you bought in (e.g was it due a Technical Analysis, breakout trade, a punt, research..etc), the type of investment (e.g long term hold or short term trade), your exit strategy etc.
You can also set up an excel spreadsheet or a folder area where you keep all your company research, posts, articles, links etc, it will make it easier for you to revisit when you need to and also keep track on why you invested or like that specific company when there are dips or share price corrections.
Make sure you research the companies before you invest in them, day trading might not require you to do so much research, but investing will. I will cover this in more details on my upcoming blogs.
Trading is a lonely game (you press the buy and sell button), but this doesn't mean you shouldn't speak to anyone, on the contrary, you will succeed more if you are willing to chat, discuss ideas and share with others. This is why social media (especially Twitter) is full of investors/traders tweeting about shares, investments/research etc. Yes there are many reasons and some have hidden agendas, but look for what can help you amidst the chaos.
Don't be shy to meet and speak (face to face or over the phone) to other investors, CEOs, Brokers etc, ask questions and network. Nothing beats learning from others who are genuine and willing to help, there are many good traders and investors around. Go to investor presentations, meetings events etc will widen your view of trading/investing and also give you the ability to know your company CEOs on a personal level, as well as brokers, traders and investors.
As toxic as it can be at times, having a social media presence is helpful, it can help highlight some good trade and investment opportunities. Or, at least feel sentiment and general consensus, the market reaction is no more than a general consensus of the many.
Action 8: Check out all the tools available and see which one suits your need best.
Last but not least, stay positive. Positivity plays a major factor in helping pick up better trades & investments, but it is usually ignored by many. The key is to keep feeding your mind positive thoughts, use your imagination to portray how you see the next trade going, how do you want to increase your portfolio? This allows your subconscious mind to do the rest. It will act as a filter, but also as a search engine constantly looking up for that big or positive trade/investment, tool, idea whatever will help you boost the portfolio.
That part of the brain - the Reticular Activating System (RAS), will do wonders for you, just like when you can hear your name being called whilst at a loud party, or you can hear your baby cry even if you have the TV on. Your RAS is switched on to look for that and will filter out the noise. No different to when you think about a certain type of car you want to buy, you suddenly start noticing them more often when you are out and about. The same will happen with trading, the RAS will seek those trades for you without you even noticing it is doing so, you will find yourself noticing good trades more and more and at times big or good trades forcing themselves to you. God willing before you know it, you will see good progress in your investing and trading.
It does not however work like a magic trick, it needs a toolset along side it that will re-enforce it. Think about it this way, have you ever gone for a run or gym session in a bad mood, only to find yourself doing a shorter run, not pushing enough or even doing half reps? But during the days you are in a solid positive mood, the run feels easier, you can go further, run faster and even push heavier weights. The same applies for trading. Use that energy to your advantage and make sure you increase all odds of success be it big or small.
Action 9: Keep your thoughts in check, any thought that is not in alignment with your highest vision, move away from it. If you fall and find yourself thinking negative thoughts, move away from them and take a mental note not to do it again. Watch your words too, they will became your reality.
To be continued...
God bless you all
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