One of the biggest misconceptions new stock traders have is that the tools make the trader. The typical questions we get from new traders are “What scans do you run?” “What broker do you use?” Which charting software do you use?” “How many monitors do you have?”
While these are important tools in order to trade stocks, they aren’t the difference between you being profitable or not. These aren’t priorities. I know many successful traders who trade with only 2 screens (I use 4) and use completely different software from me. Software and tools alone aren’t what makes a trader successful.
Having a profitable system, and the execution is even more important. These 7 things we will discuss today are the priorities for aspiring stock traders. Instead of worrying only about just software, focus on overcoming these 7 obstacles:
1. Finding the Right Mentors
In the past 2 years, the trading educational space has exploded. Everyone and their mom have a trading service now, and this is a good and bad thing for aspiring stock traders. The good is that it means there is a lot of information available for free. You can learn all the basics and terminology of the stock market for free. The bad is that there is a ton of conflicting information, and it is hard to figure out who is a REAL trader, and who isn’t.
Having a flashy thumbnail and a lot of views doesn’t mean you’re watching the right content. Thoroughly research every one you learn from. 95% of the trading services out there are scams. Paper trading, posting fake profits, and many have no proven track record in the markets. Thoroughly research every one you learn from, and be careful who you give your money to.
2. Building a Successful Trading System
There are thousands of successful trading systems out there. But you will never be able to just copy a profitable trader’s system exactly and have the exact same trading results. Everyone is a little bit different. You need to create a system that suits your personality and time commitment.
Your system needs to:
- Define what instrument you trade (stocks, futures, options, ect.)
- Define what time frames you trade on
- Define how you find trading opportunities
- Defined entry signals
- Profit-taking signals
- Stop-loss strategy
- Risk management techniques and rules
Notice the reoccurring theme: DEFINED. Most important of all, it needs to have an EDGE. This means it will make you money in the long run, with a large enough sample size of trades.
Many new traders think having 2-3 green days means they have “made it” as a trader. It actually means nothing. You can get a couple of green days in a row by just buying and selling stocks at random. What matters is your results over the course of weeks and months. You can have red days and still be a profitable trader. What matters is the CONSISTENCY of your profits. A green day here and there doesn’t mean anything.
4. Sizing Correctly
One of the most common mistakes new traders make is sizing too large. They go in with half of their account on the line on a trade, and experience a roller coaster of emotions as their unrealized PNL tortures them. So many of your destructive emotions can be removed from your trading by trading smaller.
I will see traders often actually make MORE money by trading smaller size, because they are less emotional, and improve their decision making as a result. Risk relative to your account size. Avoid risking more than 1% of your account on any single trade, and you will trade with much less emotion.
5. Protecting Capital
Making a living from trading stocks is not just about making money from the markets. It’s KEEPING the money you make. Keeping losing trades small is essential to keeping the profits you make. You can make a million dollars in a month in the stock market in a month. But if you give it all back the next month, it doesn’t matter how much money you make if you cannot keep it. Develop strategies to aggressively manage your risk.
6. Managing Emotions
Every trader is a bit different. But regardless of how experienced or inexperienced a trader is, everyone is affected by emotions. The difference between winning and losing traders is HOW they manage their emotions. The best traders have techniques for managing their emotions and preventing them from affecting their decision making.
7. Diligently Tracking Data
One thing that every successful trader does: They diligently journal their trades and track their trading stats. What isn’t measured cannot be improved. In order to improve and refine your trading to the point where you become consistently profitable, you MUST use a trading journal. To learn more about how to journal correctly, check out this article here. Our recommended trading journal software is Tradervue (check them out here).
Join Our Free Chatroom Day 2/6: Watch Professional Traders Day Trade Live
Our free chat days allow you to watch Kunal day trade live on screen share. You will also get to see a swing trading market recap with Paul Singh. Watch all the day trading setups and trades we take in real-time, and see all the scans, charting layouts, and other gimmicks of our trading style!