I started investing four years ago. Since then, I have learned a ton and consider myself a overall better investor. Of course, I have much more to learn, but there are still some things that I wish I knew when I started out. Since I cannot go back and learn these things off the start, hopefully you can put them to good use.
The following are seven things I wish I knew and focused on when I first started. They are all important and aren’t listed in any specific order.
1. Don’t Sweat the Daily Action
When I first started trading, I couldn’t stop checking the price of the stocks I owned. All this did was make me emotional and get anxious whenever a trade flops. I’m not saying don’t check the price during the day, but just don’t watch it relentlessly. It will help keep you objective and prevent any trades made on fear.
2. The Open is Insignificant
For the vast majority of my investing career, I would always check my holdings as the market opened to see where everything stood. Just like #1, this just caused me to get emotional about my trading which, in total, caused anxiety rather than efficiency. I am all for checking the status of the market and your securities at the open, but don’t make any assumptions or decisions based on it.
It’s been preached that it’s the personal investors that set the open and the professionals that set the close. I don’t know about you, but my money is following the professionals.
3. Don’t Get Caught Up in the Media Hype
I’ve touched on this before, but I’ll say it again — listening to the media is only going to increase the noise you have to filter through in order to get to the important information.
Don’t waste your time watching Cramer (or anyone else) blow hot air about which companies are looking good and which are sell, sell, sell. Focus on what the market actually does and make decisions based on that and not on what some analyst says the move means.
4. Find a Trading System
I have always known that I wanted to use technical analysis to invest. What I haven’t always known is how exactly I wanted to do that.
Having a checklist/system that allows you to follow a set routine with strict rules allows you to eliminate all emotion in your trading and produces a procedure that you can fine tune to perform optimally. No professional trader makes trades on the fly with a general set of guidelines. They all have a rigid set of rules that define their actions and they never stray from the plan.
5. Don’t Short
This is probably one of the more controversial ideas on this list. For a beginner, shorting is a realm of investing better left for more advanced traders.
It is a completely different world shorting stocks and I would classify it as much more challenging world. Sticking to only longs will keep things simple and most likely, more profitable.
6. Keep a Level Head
One of the main goals as a beginner should be to remove all emotion out of your trading. I know that I always got excited after a day of solid gains and bothered after a losing day. This is no way to trade.
Attempt to stay completely neutral regardless of the outcome. This will help eliminate taking profits too early and reduce your stress through the entire process. It won’t happen easily or quickly, but keep on trying and it will come.
7. Set an Absolute Sell Level
I picked this rule up from IBD and think it is especially critical for beginners. Set a level, between 5-10% (based on your risk preferences), at which you will automatically cut your losses and sell out of a position.
This will eliminate all catastrophic losses and help preserve your capital — keeping you in the game longer. Also, you won’t get into a position where you hold onto a losing position hoping/betting it will turn around.
You also might enjoy:
About Author
