It’s not for everyone. Trading the stock market can potentially serve as a passive, income-generating activity, a hedge against burgeoning inflation, a primary occupation, a hobby, a stimulating experience.. However, it’s not as rosy as one would like to imagine. There are trade-offs, as with everything in life. Trading may cause you increased stress, lack of sleep, fixation on your phone constantly monitoring your portfolio.. On the downside, if you don’t know what you’re doing, you can get totally wiped out, losing your savings, in the process piling up enormous debt and paying the ruinous price of riding the stock market’s emotional roller-coaster. How to not get stressed when trading the stock market?
Fortunately, there are age-old guidelines to gaining this potentially invaluable experience, all without experiencing the doom and gloom extreme scenarios associated with trading the stock market.
Education- Invest in Yourself
First things first. If you don’t know what you’re talking about, then you shouldn’t be taking any rash actions. Begin by taking a course about trading techniques and strategies. In parallel, find yourself an introductory book about financial markets and macroeconomic policy. Only once you’ve got a solid foundation as well as a practical applicable strategy can you begin thinking of putting some money to work.
Always have a Strategy- Including an Exit Strategy
It is crucial to identify the trends dominating any one moment in time. Are we in a seemingly endless era of loose monetary policy and cheap money driving stocks up to the moon? Or maybe we’re potentially on the cusp of an extended bear market, where side-ways chopping is the name of the game? How is the global economy doing? What is the Dollar’s current influence on international trade? How are central banks positioned to deal with priority challenges? Where are we in the cycle of history? Are the hated value stocks of yesterday getting in fashion all over again? Are you a long-term investor, a swing or day trader?
Serious stock traders got all this covered, in a game-plan that can be articulated, in actual words.
Pitch Your Trading Strategy to an Experienced Trader
It is completely sensible to sell your strategy to someone who is experienced in the field. Would they trust you to manage their money? Or at least, would they trust you with, let’s say, a hundred bucks?
We all want the fastest route to fame and fortune. I get it, why be rich in three decades versus three years? Cutting corners might sound alluring, but beware. If it was that easy, everyone would’ve hit the jackpot and the world would’ve been a beautiful place. However, it simply isn’t how things work in real life. Have you not played Monopoly ever?
Using leverage is a double-edged sword. While adding power to your trades, leverage is the realm of the experienced. Do not play with money you don’t have, unless you really have a well-rehearsed plan that you can follow through all the way. Leverage can expose your account very quickly, and sooner than later you’ll have to recapitalize your account as you try to stomach some volatility. Well, if the account gets exposed enough, and you don’t do something about it, your broker definitely will- aka the infamous margin call.
Dollar Cost Averaging
Why go all in? Seriously, why ever go all in on anything if you can hedge your bet? Same applies with trading. Even if you have the conviction that a stock can go all the way up, there is wisdom here. Enter with one sixth of a position. If your stock at hand is building a solid base, take another position worth another sixth. As the stock seems to prove a bullish uptrend and much more room to grow, you can take another position.. And that way, you are totally immune to losing a lot of money by gradually entering a position, and thus never accumulating big losses in one trade should things go the other way.
Trade with Sizes that Don’t Do Damage
There’s a ton of stocks to choose from in the US alone, let alone in the world. So why go all in on one single stock, regardless of how great that company may or may not be? Do not, at any cost, expose your portfolio to only a handful of stocks. Always try to commit no more than 1% or 2% to a specific stock. Of course, you can modify according to your needs, but you get the point. Do not be vulnerable to one specific stock or sector!
There’s always another trade
In the same token, there’s always another trade. If, at any given point, a stock trade goes south- let’s say 25% or 35%- close the position, take your losses, and move on. There’s no such thing as suddenly turning a trade into a longer-term investment. We’ve all been there, done that. The faster you learn to take your losses, the more disciplined you’ll become. And if you make more successful trades than unsuccessful ones, then taking a loss here and there is a perfectly expected and acceptable thing. Such is the road to trading wisdom, and hopefully some riches along the way.
It’s Time to Sleep- Set Your Phone Aside
Whatever it is you’re trading, if you have to check your phone at night-time, then you’re doing something wrong. Sleep is not only the superpower of successful traders, it is the most essential component of a healthy lifestyle- adding to it good food and some exercise. No matter what, in the buildup to the evening, leave your portfolio aside and do something meaningful. Go for a run, meet friends, go on a date, you know what I mean..
Don’t Listen to Financial TV Programs
Yes, they’re programming you to think the world is all rainbows and roses ad infinitum. It’s not. To really understand the world you live in, diversify your news sources, be inquisitive, curious, and independent of any one school of thought.
Open a Fake Money Account
You’re confident you can make money? Prove it first. Open a mock trading account, and demonstrate to yourself that you are able to be profitable over a certain time-frame before you actually put real money to work.
Reflect as You Make Progress
As you learn, as you gain experience, you might grow comfortable trading the stock market. It might not be as bad as when you began. Or maybe you thought it was for you, but those sleepless nights made it simply not worth it. There’s much more to life than trading stocks!
Every person is unique. Bottom line is, start small and see how it goes for you. Life takes you places, only if you’re willing to try new things and evolve. I remain convinced that those that live from hand to mouth are some of the “happiest”, most “content” beings on earth. But if you aspire to do “more”, you have to put yourself in uncomfortable situations. Or maybe you’re just bored like me.