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There’s no doubt cryptocurrency and stock trading get more popular every day. Gamified apps make it easy to trade stocks and crypto, and social media spread the word like wildfire. These conditions make it all but impossible for the public to resist. So, if you're looking to start investing in stocks and cryptocurrency, keep reading.
Thomas Lee in 2018 outlined his view that the millennial generation, the largest cohort ever, is coming into their peak spending and investing years. Digital tools for a digital age who already do everything on their smartphone and who trust Silicon Valley companies more than banks.
[Thomas Lee Presentation]
[Millennials trusting banks]
Google trends show that interest in “crypto trading” and “stock trading” is increasing. Worldwide lockdowns forced more people online, and this increased the recent attention around easy access to crypto and stock trading. If you look at the current trend chart movement, you’ll find W’s forming at the bottom of the chart. This is a very bullish sign for public participation, showing that these powerful moves in crypto are just getting started.
The best path for you to start is to prepare your mindset and strategy, so you’re headed in the right direction. This way you can safely take part in the market with a strong understanding of risk management and trade setups, so you can become a consistently profitable trader.
There are always risks associated with taking a trade. You could risk 1% of your total capital in one position and if the asset goes to zero, you lose 1% of your capital.
If you put 100% of your capital into a trade (or even increase it with leverage), then you could close the trade when it moves 1% against you (Using a stop loss), and this is another way to risk 1% of your capital. With the stop-loss example, you need a trading setup and plan with a 2:1 risk-reward and a 55% + win rate. This way, even if your losses add up, profits will always stay ahead.
Although in both cases you’re risking 1%, you can see they are different risk style strategies. The safest trading approach for new people is risking less than 1-5% of your capital on any single trade idea. You can dollar-cost-average into the trade, keep the trade on forever, and you only lose out if the trade goes to zero.
With the second option, you’ll have to use stop losses and get out of the trade if it moves against you. Since markets move by several percentage points in a single day, your chances of being stopped out are very high and you need a robust trading plan and setup with a strong edge in order to succeed.
Consider these two extremes of risk tolerance and decide where you exist within that spectrum. The key is to understand that you will lose money in the market, but if you manage your risk, you can keep your profits higher and outpace your losses with wins.
At TRI, we teach various setups that exist for every type of risk-taker. In the Library, you’ll find the risk-taker spectrum, and every setup outlined with step-by-step details and instructions. Login to your dashboard or grab a 30-day free trial, and explore more in the Library while dropping questions you have in the lounge.
See you in the lounge,