How to start trading/investing: strategy, risk, emotions

Hi everyone. Welcome to this video on how to start trading and investing. The reason why I made this video is because we all know when we start something new, for example, we want to learn a new sport or we want to learn a new language. The most difficult part is the beginning. And this also applies to trading and investing, especially because there is so much information available, books and you can go online, you find so many different techniques and methods and suggestions, and often they contradict each other. So when you start, you may be very confused. At least that was the case for me. So that's why I decided to make this video. Before starting as usual, please have a look at the disclaimer. Okay, so why you may be confused? First reason is there are so many things you can trade. You can trade stocks, you may trade currencies or the forex, bonds, ETFs or derivatives, like futures options, CFDs, and recently the cryptocurrencies, right? So you can choose among all these. And not only that, you have also different approaches, right? So you have people who like to, for example, for stock investing, to look at the fundamentals of the company. So looking at something like the income statement and the balance sheet or the cash flow statement to understand if the company they are buying is solid, if the debt is low, all these things, right? You also have people that like to look at the chart, the candlestick. If you have watched my previous videos, I spoke shortly about the candlestick. And so people would like the technical analysis that is basically understanding from the chart what are the emotions of the market. And there is also something more advanced, like the mechanical trading where you basically write a program, a computer program with all the rules, and this program will run and buy and sell automatically. Then you have the time frame. So there are people who do scalping, where basically they enter, they buy and sell within minutes or seconds. Day trading is also very short term and basically you open and close the position within the day. Then you have swing trade, where basically the duration of the trade can be a few days to a few weeks. And you also have position trading, where you have a position that can remain open for a few months, two years after that. You have different strategies. So some people, they like to follow the trend. So in a way, you know, they buy when the price is high and, and they sell when it's even higher. Or you can have mean reversion strategies where you buy low, for example, and you sell high. And then you have a lot of variation. You have people who trade according to trends, sorry, to patterns. You have people that use some combination of candlestick to decide to buy or sell, or you have people that use indicators. There is really a lot of stuff. And the problem is that even after all this, you are still missing something. Actually, you are missing the two most important things. The first one is the risk management. So concept like how much should I risk for each trade? Position sizing. So how many shares, for example, should I buy? Reward risk ratio. So when I make money, how much am I making over how much am I losing when I lose? And this is very important if you want to define a very profitable strategy. And the other thing that is probably even more important is emotions management. How can you overcome drawdowns or series of losing trades that will happen? How can you control fear and greed where you are trading? Because, for example, you may have a set of losing trades and what can happen is that you may lose confidence in your system. You may want to change some parameters or even move to a different system. Or for example, when you have a series of winning trades, you, you may feel overconfident. So you may want to increase your risk per trade. So all these things are based on your emotions. And if you just let your emotion control your trades, you are going to lose money. So you really need to have discipline to follow the system. Okay, how can you start? So I write here a list of points that I hope will, will help you to start. The first one is you need to define an objective. So an objective can be, for example, I don't know how much, what is the return that you expect to make every year? And this objective must be specific and realistic. Specific means you cannot just say, you know, I want to make money. It doesn't work like that. You need to say, for example, I would like to make 5% every year or 10% every year. And when you know this, you will also know which kind of instrument and strategy you can or cannot use. Because you may have some instrument where making 20% every year would be very hard, but for other instruments it may be possible and then it must be realistic. Of course you cannot say, you know, I would like to make 500% every year. I'm not saying it's impossible. But still, you need an objective that makes sense. Right after that you need to learn the basics of the main instrument. Why? Well, of course if you have to choose between options and stocks and ETF and futures, you need at least to have an overview what are the main features of all these instruments. So then you can choose, I list here a few, actually two websites that you can use to start. So1is investopedia.com and this is more for general knowledge. You can have a look. It's quite interesting and you may find a lot of information on strategies and also the instruments like the list that I wrote before. And there is another one quite useful for forex trading is Baby Pips. And in addition, you have a lot of YouTube channels like this one, books and free and paid courses. So the resources to learn the basics are really a lot. After that you need to clarify your preferences. So when you have an overview of the main instruments, you may feel that you know, for example, I think I like Forex, I understand better how it works. It makes more sense for me. You need to define what is your time horizon. Are you more oriented to a strategy where you hold for a few months or years, or do you prefer to be in and out in a few days or even hours? Then do you prefer to look at for example the fundamentals like what I mentioned before, the balance sheet or the income statement of a company to decide if it's something worth buying? Or do you prefer to look at the chart and using some technical analysis? And then also it's also important to understand what is the time that you want to dedicate to trading, okay? To do your research and to place the trades and to review after that, when you have identified something that you would like to study better, you need to spend some more time to really understand how it works. For example, if you decide to go to stock trading, then you may want to know how to the market, the stock market works. And this will require you to study more, okay? And the next step is to learn a strategy that fits your preferences. So what you have seen before, right? The definition of what is your the instrument that you want and what is your time frame? And are you more oriented to fundamentals or technical what? When you have decided this, then you need a strategy. And when I speak about strategy, I really mean a set of rules that you can write down that tell you what to buy or sell, when to enter, okay? And maybe even more important, when to exit. So, for example, where do you put your stop loss? Where do you put your target profit, if you have one, then risk management, okay? So what is the risk per trade that I'm taking, for example, and how much to buy or sell? So the position sizing and also how to manage open positions, right? For example, you may have a strategy where you have a target profit and stop loss. And when you are in the trade, you just wait for the trade Trade to exit either with profit or loss. Or you may want to protect your profit and raise your stop loss. There are many ways, but everything needs to be defined. Okay? And also another important thing is which broker to use. Because according to your choice, you have different options. So if you want to trade forex, you have some brokers for stocks, you may have other brokers. So it really depends on what you want to do after that you need to try, you need to paper trade. So paper trading means that the broker, the platform you are using can give you some fake money to simulate your trades. So the order will be more or less executed like in if you really place those orders, but you will have fake money. So whatever you lose and also you win will just be again, fake money. But why is this important? First, because you will get some basic knowledge of the platform. For example, and if you watch my previous video, I show you how you can use two platforms to place orders and they are quite different. So you really need to be familiar with the platform. And paper trade is good for that. And also it's good for you to gain confidence on your strategy. Okay, Now I suggest you to practice for at least three months. Really the minimum should be three months. And one of the reason is the 199090 rule. So if you don't know, this rule is basically a statistics that says that among the retail traders, 90% of the people lose 90% of the capital within 90 days. And it's pretty scary. And the reason why this happens is for all the points we have highlighted so far. So people that trade without a system, people that trades without risk management, or people that trades without really knowing what they are doing, they don't know the market they are in. Okay? And also with paper trade, you can start to keep records of your trades, a trading journal. And this is very important because when you place your trades and then you write down, for example, your entry date, exit date, what you buy, the entry price, the exit price and the reason for you to buy, the reason to sell. Then after a while you can have a look and then you can use this information to improve. You may find that you know, I always make this mistake. So you can make a note next time, don't do this. Or you may also find some ways, new ideas to improve the profits of your strategy. So after that, when you feel confident, and after you have a few months of paper trade, then you can start with real money. Now when you start with real money, the first question probably is, okay, what should be my account size? So this depends first, on the instrument strategy that you are using. For example, if you trade futures, you may need more capital than stocks, okay? And also very important since you're just starting this amount should be something that you can afford to lose. Because it may happen that you lose this money at the beginning, right? So you really need, for example, you could do something like that. If you don't have the money every month you can save something and when you have enough to start, then you can do it. But it's very important that at the beginning you put there some money that you can afford to lose. Next point, that is probably the most important. When you start with real money, you will really see how your emotions are playing with your with your trading system. And it really give you the opportunity to learn how to control your emotions. As I said, when you have a set of losing trades, you may feel the pain of losing real money. Something that will not happen with the paper trading. So this is one of the main differences. When you're just paper trading, even if you have 10 loss in a row, probably you don't give a shit because you are just losing fake money. But if this happens with the real money, your response will be quite different. So starting with real money will give you the opportunity to learn how to control your emotions again. As before, you still need to keep records and review to improve. And at the same time you also need to keep learning new stuff and study to become better and to maybe finding new ideas and new strategies. So if I can give you some practical suggestions. The first one is have a look again at the steps that we have described and convince yourself that you need to go through that there is no shortcut. It's not because you read a book or you attend a four days course or you watch a few videos on YouTube that you are expert. You need the strategy, you need the paper trading, you need everything. Okay, I also can suggest you two books to start that I find very good. The first one is written by Alexander Elder and is the new Trading for a Living. If you. If you want on YouTube you can find also the audio version of this book and this is quite good because it's giving you some suggestions about strategies and risk management and also emotions management. And the second book is a book, the first book I bought actually because I am in Singapore and is written by Adam Kua, Singaporean and is winning the game of stocks. So the focus here is more on stocks and ETFs. But I really think it's nice book because it's explaining a lot of concepts like fundamental analysis, technical analysis, candlesticks and risk management, emotion management in a very simple way. So these two books are really good to start. I really suggest you to read them. And then of course you can follow this YouTube channel. Because I will keep posting new videos related to all the points we have touched before. So to summarize, first thing, remember, there is not only one strategy that is profitable in the market. You have many instruments, many different approaches. So really you can find a lot of strategies that can give you money. The most important thing is to find one that suits your preferences, the personality and the goals that you have defined at the beginning. Then keep learning and revising. This is the only way to improve. Again, you cannot think that. You know, I've taken, I read three books and I've taken one course. I'm done. I am an expert. It's not like that. And also, do not give up in difficult situation. Sooner or later you will have a set of losing trades. You will have to experience drawdown in your account and in this case, emotions. You need to control your emotions. You need to keep confidence in your system and you should not deviate from the rules that you have decided. Okay? So thank you for watching. 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