This blog post will outline how to start investing in stocks for beginners, intermediate, or pro traders. I'll keep it as short as possible while giving the most value. At the end of this blog, I'll give you a trading resource that (if you use it) will help you become a pro trader.
At The Rational Investor, you learn how to start investing using two simple rules that every trader and investor must follow. These rules keep you safe, allow you to make mistakes while you grow, and make sure you always come back tomorrow. We discuss more on the two rules in this blog post here if you'd like to read further. [Source]
Rule #1: Follow an algorithmic system that produces a 2:1 reward for risk and is correct 60-70% of the time.
Rule #2: Never risk over 5% of your stake/capital on any one investment idea.
At TRi, we identified several trader types on the risk-taker spectrum who follow these two rules in unique ways. For example, if you are a 'Little old Lady', you can risk your entire 5% stake on a single idea and never use a stop-loss because you don't mind the whole position going to zero. If you're a margin trader, you may risk a more considerable amount of capital on a single trade; however, you'll use a stop-loss, so if the trade goes against you, you'll never lose over 5% on that trade.
Here's how each trader appears on the risk-taker spectrum. (Picture depicts accurate emotions these traders feel)
Here is how each risk-taker uses their 5% to participate in the market. You can see how each trader uses their 5% differently, depending on what type of risk-taker they are.
Let's examine the algorithmic approach to trading. At TRi, we talk about using three unrelated reasons to take a trade. We won't be able to go into detail with each reason (There is a 12-week course dedicated to this training at TRi if you'd like to learn more). However, we can look at a bird's-eye view of these three reasons.
Your three unrelated reasons will be Location, Indicator Confirmation, and Market Structure.
Location: Is the price of your asset in a reload zone?
Indicator Confirmation: Is there a divergence in a momentum indicator like MacD, OBV, or RSI?
Market Structure: Is there a candle pattern or market structure shape (head and shoulders, W pattern)?
When these three unrelated reasons line up, you have an algorithmic advantage to your trading called a "Setup." At TRi, several setups are taught in the level 1 program and shared in the Library. Find out more about using setups in your trading in the Library and Level 1 education program.
When most beginners learn how to start investing in stocks, they often take trades like they'd throw dice in a casino. There is no structure, tracking, journaling, or learning of the process. If you want to trade like a professional and build a profitable trading business, you need a trading plan, trading log, and trading journal.
I've prepared a template that includes all these in one, so you can grab it, copy it to your google drive, and use it to track your trading in the future.
Direct Link to Template: (Please make a copy to your drive)
We've only scratched the surface of learning how to start investing in stocks, so if you'd like more information, jump into a 30-day free trial at TRi. You get access to the -Library, which is jam-packed with trader resources, including setups, trading scripts, tools, books, videos, Daily Brief specials, etc. Join using a 30-day free trial here: join.therationalinvestor.com/trial