Practice Stock Trading Systems

There are a few things that I wish I had known when I was first learning to trade stocks. There is no way to be completely prepared for the emotional swings that trading stocks invariably brings, but I figured it might be valuable to hear one person’s perspective. These are just a few things I learned from when I was a new to the stock market.

Know your tolerance for risk

This is not some abstract concept, you need to know how much money you can afford to lose in a given time period and not have it affect your thought process. This can be a percentage of your total trading account value, or a hard number like $600. The hard fact for stock traders is that you will have losing days. You will have losing weeks. You will have losing months. If you are going to invest your time and money into a pursuit that involves substantial risk and is almost guaranteed to show losses at some point, you absolutely have to know your tolerance for those loses. That being said, it is very difficult for stock market beginners to understand how losing money in the market actually feels. The beginning stock trader has never actually dealt with the emotions that come with losing money. So how do you prepare for this? I think the best thing for someone who has never traded before to do is define an exact amount of money that they will be willing to lose. If you say that $600 is the most you can lose in a month, then if you hit that dreaded loss you shut down your trading for the rest of the month. Ask any broke gambler how chasing losses pans out. If you can avoid trading on emotion or “trying to get even” you will be ahead of the game.

Have a plan for every trade

Don’t ever enter a trade without having strict guidelines for how you will get out of the trade. If you just buy a stock hoping it will go up you will never be satisfied with the results. Maybe it does go up… then what? Do you hold it for another day? What if it goes down, will it make a rebound? These are questions you should have answered before purchasing the stock in the first place. One of the most common traps in the stock market for beginners is the tendency to hang onto losing trades for too long. I was guilty of exactly that. I would make a trade and it would go against my prediction so I would rationalize why I was holding onto the stock. “I just made the play too early, it will come back”. “After a drop like this it has to rebound, right?” Make sure you have a target in mind when you execute every trade. Write down those targets. Seriously. When you begin a transaction in the stock market write down exactly where you will sell that stock. Write down where you will sell if the price goes up, and where you will sell if the price drops. Write down what you will do if the stock’s price doesn’t move in the next hour or day or week. If you go into every trade with a plan you will help keep emotions to a minimum.

Realize that everyone has a bad run

I know that some of what I’m writing sounds really negative, and there’s a reason for that. Everywhere you turn someone is promising unheard of profits by trading in the stock market. If you are human you can’t help but let some of that sentiment seep in. Even if you are attempting to enter this arena as a level headed stock market beginner, it’s hard not to dream of easy money. There is money to be made by trading stocks, it’s just not easy money. At least it’s not easy money for the vast majority of us… the small fish in the retail stock trading market. If you come into this endeavor with a clear picture that trading stocks is a skill that takes a long time and a lot of practice trading to master, you will be less likely to take that inevitable bad run and turn it into a horrible monetary loss. Keep your head on straight and you will be fine.

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5. Welcome to Practice Stock Trading Systems