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Are you a beginner trader who enters the stock market during Corona Pandemic?
You’re not alone.
In the past year, there has been a lot of talk about trading and how to make money in the stock market.
As a result, many people have tried their hand at trading stocks and other securities.
Unfortunately, most people fail in this endeavour because they don’t understand how the stock market works.
Most people start with big dreams and small capital, but they don’t plan for success.
They subscribe to paid tips or follow other people on social media without doing their research.
This leads them down the wrong path and into making bad decisions that cost them time and money.
The best way for anyone to understand the stock market is to know that a few key factors play essential roles in making money from it consistently.
If you genuinely want to succeed in your investments or trading, you must first know what it takes.
The following article will discuss one proven formula for success that anyone can use to start seeing success!
Before it let’s see the cycle of a beginner who enters into the stock market and options trading and how he fails miserably.
This will help you avoid making the same mistake twice.
The Cycle of a Beginner who enters Trading
I’m going to tell you exactly what beginners do when they first start trading.
I will also tell you the mistakes they made during their starting days so you can learn from them.
If you have been in the market for 4-5 years, you can relate to this cycle. I also made the same mistakes.
Many people come into the share market or trade without knowing how much money they are about to lose.
I’m sure that you have heard this many times before, “Trading is not for everyone.”
It seems that most people get into trading with an unrealistic view of what trading is. They get into it thinking that it will be easy to make money.
When you are just starting, beware of this cycle because it’s real.
What will happen if you ignore this advice and follow your emotions instead?
Well, eventually, you will be forced to face the same reality that traders face every day.
First, people come into the stock market and options trading by listening to others or friends. They don’t have any knowledge about the market or how it works.
They only know that they can make a lot of money. They watch millionaires on TV and think that they can do the same.
People know nothing about the market, how it moves, why it moves, what drives price action, and so on.
So they get trapped by seeing the profits of other people posting on social media.
Most of these photos or videos are edited to engage people who are unaware of the risks involved.
They get attracted to these kinds of posts and start following them blindly.
So they start taking paid tips, thinking that their small capital will increase many-fold in a day or two days.
But unfortunately, this is not how it works in the stock market. It would help if you studied first.
In the early days, they may make some profits and feel that there is a lot of money in the stock market.
They tell their friends and family members about the gain by using a small capital of 10 to 30 thousand.
But after some trades, they start losing money slowly and incur more significant losses because their capital base is low.
As a result, their emotions get affected and thus their judgement as well.
By following paid tips, they lose all the money and again start borrowing money to recover their losses.
This cycle goes on until he is bankrupt.
If you are new to the stock market, do not take paid tips to earn easy money; instead, study first.
There are no shortcuts. Most beginners get trapped in this cycle for one year or two years.
I hope you have a clear picture of the process of a beginner who enters into trading.
You will not get success overnight just because you have bought a product or paid for someone’s tips who knows everything in the market.
That is why I am saying, “If you want success, then first learn.”
Common Mistakes Beginners Make
Traders make mistakes when they enter the market without proper knowledge, as a result of which they end up losing money. These mistakes are:
1) They look for quick money and start taking paid tips, which is entirely the wrong approach.
2) They don’t know about the market or trades.
3) Instead of learning how to trade by themselves, they listen to others blindly, even if it makes no sense or does not fit any criteria.
4) They don’t have a trading plan or strategy. They do trade according to their moods and emotions.
5) Sometimes, after losing all of their capital, they try to recoup it by borrowing money from friends and family.
6) People make mistakes by buying “naked” options.
7) They start blaming the market or other factors for losing money instead of realising that they have been making mistakes from the very beginning.
A Roadmap to Success in the Stock Market and Trading
Only the smartest traders know the secret to making money in the stock market or through options trading.
They understand that there are no shortcuts or easy ways to make money in the market.
They are willing to work hard for their money if they expect to succeed.
Everyone can succeed in trading if they’re willing to learn anything about the market.
Do your homework before you even open a brokerage account.
No matter how many gurus you listen to, following this formula will help you plan for success.
If you are a beginner, you should use this roadmap to ensure you are not wasting your time.
The formula is 80/10/10.
- Knowledge (80%)
- Skills (10 %) and
- Conviction (10 %)
You must have 80% knowledge, 10% skill, and 10% conviction (faith) in your ability to make money by trading.
Without any one of those things, you can’t be successful, but they can bring you big profits together.
I will discuss the three parts of the formula, their importance, and how they work.
1. Knowledge (Learning)
It is the most essential part of the process. It is 80% of this formula.
You should know that it will take time to learn different ways of reading the market, understand technical analysis or fundamental analysis, etc.
You can’t expect to become an expert in a short period of time.
It is very important to have patience, especially in the beginning when you are learning almost everything from scratch.
In the beginning, you have to find a mentor or someone who can help you by staying on the same page.
That will save you a tonne of time because it’s impossible to learn everything from scratch without having someone help you!
You will get better and better with time!
Most beginners don’t give themselves enough time to learn and enter the market without knowledge, losing their money.
They think that they can learn everything in a few days, which is impossible. I even had this problem before starting my trading journey.
So if you’re willing to learn more about the market, be patient and don’t rush!
Focus on learning for at least six months to a year; this is how much time you need to know about it.
If you don’t focus on learning in the early months, the market itself will become your teacher, and you’ll lose a lot of money.
Everyone must have an edge: You must have extra knowledge than other people in trading to get successfull. The edge can be your strategies which generates profits consistently, can also be a unique insight in identifying stocks capable of performing well if you know how to apply it. I will write a separate blog on how to have edge in stock market.
2. Skills (Experience)
After you learn about the market, you will require some skills to be profitable in it.
You can’t expect to make a profit right from the beginning when you have no experience!
Skills are 10% of this formula, and they come naturally over time with experience and playing in the market.
All of my skills came from experience and playing in the market.
Once you learn the basics, it’s very easy to start making money by trading (even though it can be frustrating at first!).
It is important to know that you won’t be profitable in the market without any knowledge or skills.
So you have to learn as much as possible about the market and then apply your knowledge in the demo account!
In my case, I was planning on learning more about trading methods before I even opened a real account.
But once I knew from experience, it helped me a lot to become profitable because I was able to see how it worked.
It is also a good idea to paper trade for some months before starting actual trading!
3. Conviction (Belief)
After you learn about the market, you need something that drives you to keep going, despite all of the inevitable mistakes!
Conviction is 10% of this formula, but it’s essential because everything else can be useless without it!
Conviction is what drives you to keep doing your best in the market despite all of the inevitable mistakes.
Every trader makes mistakes, but only the smart ones learn from them and grow their knowledge while managing their risk.
Without conviction, the knowledge and skills that you have acquired over time will not bring success.
If you aren’t confident in your abilities, no matter how much knowledge and experience you have, it won’t help.
Until I started believing in myself more, I could not make any money in the market.
You need to believe in what you’re doing, and if you don’t focus on the money aspect, it will be much easier for you!
Conviction is a very important part of this formula because it brings everything together.
You can develop conviction by starting to trade with a small amount of money and getting control of your emotions.
If you can’t manage your emotions, no matter how much knowledge and skills you have in the market, they will not help!
Some Important Points
1. The stock market and trading is a skill, not luck, so keep practising and always remember that if you’re unsure what to do, it is better to stay out of the market until you get more knowledge about it.
2. Don’t trade with money you might need in the next six months, or don’t borrow money for trading via margin, etc.
3. When trading, monitor your trades daily and always follow stop-loss orders so when your trade goes wrong, you won’t lose too much money.
4. Don’t trust paid tips.
5. Never purchase naked options.Always do hedging.
6. Trading requires time, effort, and diligence, which can only lead to success if you believe in yourself.
7. Your knowledge must grow every day by reading, practicing, and learning. So remember, don’t expect yourself to become an expert trader overnight; otherwise, you may be disappointed.
8. Never trade in a hurry because it will lead you to mistakes and a loss of money. Take your time and make decisions carefully after giving them some thought.
In my opinion, if you want to make money in the market, be patient and learn as much as possible about all of the basics.
Then develop your skills by practising on a demo account for months before starting actual trading with your own money!
Also, always have a positive attitude towards what you’re doing or trying to do because it is very important.
Conviction is a key part of this formula to succeed in the market, so start developing it by working on your emotions and trading with a small amount of money before starting actual trading!
Once you have all three parts together, then you’re ready to break the bank!
It is a journey of a lifetime, and it takes the proper knowledge, skills, and conviction to be successful.
I wish you all the best in your trading journey!
Please leave a comment below if you agree or disagree with the article!
Disclaimer: This article is for educational purposes only and should not be considered as financial or career advice or a recommendation of any kind. The author of this piece does not guarantee its accuracy. Always consult a financial advisor and do your research before trading or investing in any market!