New Traders Set up Tips
Updated: Mar 7
There is nothing more annoying than starting your trading career, spending hours practicing and refining your strategy, studying the market obsessively only to find that you are still struggling to make any money. This could be because you chose an unsuitable strategy that does not fit your type of trader. It can also be the kind of market you want to trade-in, or perhaps your technique is incorrect. Below are some new traders' setup tips.
One way of looking at the market is whether or not it is in a trending manner or if it is choppy. When prices are trending upwards, these signals buyers enter the market and make purchases. This pushes the stock price up even further. However, when no clear trend lines are discernable, perhaps neither bulls nor bears control prices. This can be called a range-bound market. When the boundaries between ranges narrow before closing, that is known as channeling, while widening is known as expansion. The exit of buyers at this point signals a future price fall and vice versa for selling.
Understanding Volume and Price
Volume and price are two different metrics that go hand in hand. If prices move up, the volume will follow suit. However, not necessarily the other way around if prices drop. The more buying there is, the higher the volume will be. Lower buying activities tend to cause low activity on the stock's volume graph. Penny stocks typically have low trading fees attached. They attract small-time traders looking for quick profits. This can amplify their returns by magnitudes when these seemingly cheap stocks skyrocket in value.
Understanding Time Frames
Traders should know what time frame they want to invest in. Committing to a particular time frame ensures that they practice patience. Such practice will lead to fewer emotional decisions during trading sessions. Short-term trading is done over a few minutes. Medium-term trading may be conducted over days or weeks. Long-term traders focus on long intervals, hours, weeks, and months. Swings are not taken into consideration at all. Instead, it is about holding onto positions for extended periods. This means resisting the urge to sell when it is bad or buying more when markets dropdown.
Understanding Risk Management
Traders should set a stop loss point to prevent the risk of going bankrupt. They should also know their entry points and stick to them. Traders need to calculate the amount of money they stand to lose if their positions drop by 30%. This makes it easier for them to stay level-headed when market volatility causes large swings up and down. If this value is too high compared to what they can afford, then perhaps these trades are not for them. Instead, traders should look towards safer investments where there is a less tangible risk, but yields are more constant than uncertain with brief periods of high returns.
Trading is a very demanding profession. At the same time, it is also one of the most rewarding vocations you can imagine. The trading world is not for everyone, though. You need to be well prepared for the task ahead to enter this realm.