S&P 500 IndexEducation
Lessons from a small newbie account. 1.
Although I have been interested in markets and economic data for some years I only got interested in actual trading a few months ago. I'm going to document some lessons I am beginning to learn here as I stumble my way forward. Hopefully this may be of interest to anyone else who is fairly new to trading and investing.
1. AM I TRADING OR INVESTING OR BOTH?
I have realised that I need to be much clearer about my intentions for each trade I make. There are some instruments that I really wanted as longer term holds and some that I meant to be shorter term. I have realised though that in practice I tend to get these jumbled up. The result I end up selling stuff I meant to hold or hanging on too long to stuff that was meant to be a short term trade.
Solution: I need to Journal clearly the intent behind each transaction. The logic behind it and what the intended timescale is. I should only deviate from that when the logic for changing that intent is compelling.
2. TRADING CAN BE AS ADDICTIVE AS GAMBLING
Watching every tick. Checking every price move. Fear of missing out on aa good move. This and various other psychological factors can result in trading becoming like an addiction. You have to get that fix. Have to make a trade. have to make money ( or in reality lose it).
Solution: be aware of the addictive element. Avoid over trading as a result of compulsion to trade. Switch to a higher time frame to slow down. Journal reasons for trades - if there is no clear reason don't make the trade.
3. TO CRYSTALISE A LOSS OR NOT?
I think this relates both to point 1 and point 2 as well as some other issues. Taking a quick loss at a stop lets me move my money into a different trade. It keeps my account nimble. However I inadvertently early on let one trade fall around 25% as it moved quickly and of course Id forgotten to set a stop. Now I could have still just sucked up the loss and scaled out. But it was a stock I had some confidence in so I have held on. Its now just 1% below my purchase price and resuming the upward trend when I bought it. This relates to point 1 because I had seen it as a stock that had longer term potential so I held on.
Solution: Clarity about the intent of a purchase and its timescale - short medium or long -perhaps may influence my risk appetite for the scale of price movement and my willingness to sit in through a price fall.
4. NO CLEAR TRENDS? SIT IN CASH.
I felt compelled to get everything invested early on. Time is money! Except this led me to rush and force trades and buy at sub optimal price points and also to do an element of random buying. I have curtailed this tendency considerably. I forced myself to sit almost 100% in cash for a few days to break this tendency! Solution: Cash is a valid position.
5. DON''T UNDER OR OVER DIVERSIFY > FOCUS
Because I want to have a core list of longer term holds as well as doing some shorter term trading and as a result of my tendency to overtrade and be too random in my initial trading I ended up with far too long a list of active trades. That made it difficult to focus on what my goals where for each trade and again brought too much randomness into my activity. Solution: Again be clear about longer term and shorter term goals for each trade. Don't hold a long list of trades. If I was just very short term trading my list might be extreely short. It's a bit longer because Im also holding some stuff longer term. Solution : Clarity about reasons for each trade and its intended timescale. Let existing short term trades play out before jumping into new ones at this stage. Learn to walk before trying to run.
6. CREATE WATCHLISTS WITH MANAGEABLE NUMBERS OF STOCKS/INSTRUMENTS AND MONITOR THEM CLOSELY.
Watchlists are a powerful tool. Im learning to categorise the stocks I watch in various ways. Healthy stocks ( eg good earnings ), rising stocks, stocks consolidating with potential breakouts etc. I haven't found exactly the right watchlists to have yet but I'm working on it!
Ok so that was me trying to be honest with myself about just some of my early weaknesses and how I'm trying to improve them. Ive been trading my real account since end of January and Im down around 6% at this point but improving. That may not seem like success to experienced traders but given the market conditions and my raw newbie status I think that is probably not too bad. I've noticed that my performance has improved significantly in the last month and that most of my loss came in the early days when I was making the most egregious mistakes.
I hope these thoughts are of interest to someone. I welcome any feedback or comments.
1. AM I TRADING OR INVESTING OR BOTH?
I have realised that I need to be much clearer about my intentions for each trade I make. There are some instruments that I really wanted as longer term holds and some that I meant to be shorter term. I have realised though that in practice I tend to get these jumbled up. The result I end up selling stuff I meant to hold or hanging on too long to stuff that was meant to be a short term trade.
Solution: I need to Journal clearly the intent behind each transaction. The logic behind it and what the intended timescale is. I should only deviate from that when the logic for changing that intent is compelling.
2. TRADING CAN BE AS ADDICTIVE AS GAMBLING
Watching every tick. Checking every price move. Fear of missing out on aa good move. This and various other psychological factors can result in trading becoming like an addiction. You have to get that fix. Have to make a trade. have to make money ( or in reality lose it).
Solution: be aware of the addictive element. Avoid over trading as a result of compulsion to trade. Switch to a higher time frame to slow down. Journal reasons for trades - if there is no clear reason don't make the trade.
3. TO CRYSTALISE A LOSS OR NOT?
I think this relates both to point 1 and point 2 as well as some other issues. Taking a quick loss at a stop lets me move my money into a different trade. It keeps my account nimble. However I inadvertently early on let one trade fall around 25% as it moved quickly and of course Id forgotten to set a stop. Now I could have still just sucked up the loss and scaled out. But it was a stock I had some confidence in so I have held on. Its now just 1% below my purchase price and resuming the upward trend when I bought it. This relates to point 1 because I had seen it as a stock that had longer term potential so I held on.
Solution: Clarity about the intent of a purchase and its timescale - short medium or long -perhaps may influence my risk appetite for the scale of price movement and my willingness to sit in through a price fall.
4. NO CLEAR TRENDS? SIT IN CASH.
I felt compelled to get everything invested early on. Time is money! Except this led me to rush and force trades and buy at sub optimal price points and also to do an element of random buying. I have curtailed this tendency considerably. I forced myself to sit almost 100% in cash for a few days to break this tendency! Solution: Cash is a valid position.
5. DON''T UNDER OR OVER DIVERSIFY > FOCUS
Because I want to have a core list of longer term holds as well as doing some shorter term trading and as a result of my tendency to overtrade and be too random in my initial trading I ended up with far too long a list of active trades. That made it difficult to focus on what my goals where for each trade and again brought too much randomness into my activity. Solution: Again be clear about longer term and shorter term goals for each trade. Don't hold a long list of trades. If I was just very short term trading my list might be extreely short. It's a bit longer because Im also holding some stuff longer term. Solution : Clarity about reasons for each trade and its intended timescale. Let existing short term trades play out before jumping into new ones at this stage. Learn to walk before trying to run.
6. CREATE WATCHLISTS WITH MANAGEABLE NUMBERS OF STOCKS/INSTRUMENTS AND MONITOR THEM CLOSELY.
Watchlists are a powerful tool. Im learning to categorise the stocks I watch in various ways. Healthy stocks ( eg good earnings ), rising stocks, stocks consolidating with potential breakouts etc. I haven't found exactly the right watchlists to have yet but I'm working on it!
Ok so that was me trying to be honest with myself about just some of my early weaknesses and how I'm trying to improve them. Ive been trading my real account since end of January and Im down around 6% at this point but improving. That may not seem like success to experienced traders but given the market conditions and my raw newbie status I think that is probably not too bad. I've noticed that my performance has improved significantly in the last month and that most of my loss came in the early days when I was making the most egregious mistakes.
I hope these thoughts are of interest to someone. I welcome any feedback or comments.
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