Best trades for new traders
It’s a very valid question and one that merits some serious consideration. What are the best trades for new traders to start trading with?
When I first started I remember taking out UK stock trades. These were generally very slow moving but trending stocks. I did this after months of paper trading. I suppose I was and am just a bit cautious by nature.
There is no right or wrong type of trade to choose when starting out, although trading less volatile markets are what beginners should really try to start with in my opinion. Mainly because you will get a chance to evaluate your emotions and will have more time to act or shall I say react accordingly.
Volatile markets are not for the faint hearted. The wins can be big and fast but so can the losses. Remember as a newbie trader that you have the rest of your life to get rich and become a successful trader. So take it easy and don’t act like a monkey in a peanut factory when starting out.
As a general rule, look for steady trends that are above the 200 SMA. Also the lower the actual price of the stock can sometimes lead way to less volatility.
You can use other indicators like Bollinger bands that apparently detect market volatility. But I personally have only ever glanced at this theory as I found trend trading is what suited me.
A key consideration is how you react to a losing position when beginning trading. It’s simply not all about choosing the right market to trade.
Choosing the correct market to trade is obviously an important decision to the new trader but it’s one that you shouldn’t get to hung up on. After all there are only 3 possible outcomes; the price goes up, down or sideways. You win, lose or draw basically.
In my opinion the biggest factor that a new trader should be considering is that they are managing stake size correctly and accordingly to the market/s you are attempting to trade.
Split your bank into percentages and use that percentage as an overall liability to the market.
So if you have a £2000 trading bank then your total liability on any single trade should not exceed 10 or 20 % or £100/200 on any one trade. You the just adjust your stake size accordingly.
Having a sensible approach to your bank preservation like this will help you make better decisions as a trader, far better decisions than trying to decide what trade you should make that is going to go up, up and away to your first £1,000,000
Another approach to deciding on what to trade first is to trade a few stocks/markets and close out the losers. This will or should eventually become part of your overall trading strategy. So instead of choosing that one sure thing try to choose 3-6 instead.
You can also look to trade some of the more defensive stocks as these can also offer more stability if trending.
As I have mentioned before, 20% of your winning trades will make 80% of your profits. So don’t sweat it losing a few trades when you start out. Even if you only manage a few winners out of your entire decision making, you’ll still profit long term as long as you cut any losses quickly.
So just to recap on what to look for in the markets when starting out and deciding on those first few trades…
- Choose trending markets
- Choose less volatile markets
- Choose more than one market to trade
- Manage your bank size
- Manage your stake size
- Remember 20/80
- Have an exit strategy
Start slowly and remember that trading is one hell of a marathon not a quick sprint to riches.