Link: Five Career Saving Tips for New Traders

Jonathan at the A Trade a Day blogspot recently posted a brief but helpful post regarding Five Career Saving Tips for New Traders.

I have to emphasize two points on his list:

1)  Start with as large an account as possible

Not only does it provide you a cushion against early losses, it means that you can try different strategies (or set-ups) that allow for diversification.  Yes, even traders need to be diversified.  You shouldn’t ever ‘put it all’ on one position… or even all on two or three.  A large account is beneficial in so many ways, provided you don’t use it all at once.

Recall that you should trade with money you “can afford to lose,” and when you trade with a large account – at least over $50,000 for an at-home retail trader – then you’ll be less likely to make extremely dumb mistakes (such as overbetting or overcommitting capital).

4)  Trade Small

You would think that with a large account, you would put lots of money into each trade, but that’s not likely the best way to advance.  Think consistency.  Think stability.  Don’t think “Homerun!!!” or big profits from the start.

With a large enough account, and small (relative) trades (small position sizes), then you can utilize ‘hedging’ strategies such as going “short” on short-sell set-ups in some ratio to the long (buy) trade set-ups you take.  Also, you can diversify by trading across sectors… or even markets using ETFs.  You won’t gain cash quickly, at least you probably won’t (initially), but you’ll be able to stay in the game longer.

When you start trading, you should be trading for experience, not for money.  You need to be ‘learning the ropes’ – meaning learn the market you’re trading and learn how you act under pressure.  If you have small positions on, chances are that you’ll not only be able to sleep at night, but no one trade will dominate your conscious thoughts.  Even if one position crashed terribly, you would have the others, and you might just stick around long enough to learn what went wrong instead of ‘freaking out’ and becoming panicked.

The name of the game is overcoming your learning curve.  In order to make money, you will have to invest a lot of money in the markets and in yourself (meaning your education and experience building lessons).

While there are a lot of ‘tips’ to help new traders, I would recommend reading Jonathan’s list for a little boost.