The other day, a friend asked me, “I really need to start trading. How do I start? Where do I start? I know that you’re doing a lot here with stock market trading. But what is the first step?”
This is why I decided to make a Stock Market For Beginners 2022 guide, which is a step-by-step guide of what to do if you’re new to trading.
Three Things You Need Before You Start Trading
If you plan on trading at a high level, you will need a solid trading strategy. What does a trading strategy do? A solid trading strategy needs to answer three questions.
Question number 1 should be “what do you want to trade?” Do you want to trade Tesla, Apple, CPE, or DCP? You might still be trying to figure this out, which is exactly the point of this question.
Question number 2 asks “when exactly do you enter?” Do you buy a stock right now, when it breaks above a certain price point? Do I buy it when it drops below a certain price?
Question number 3 that a trading plan should ask is “when to exit?” And you either exit with a profit or you exit with a loss.
Powerful Trading Tools
The next thing you need is powerful tools like The PowerX Optimizer. I will discuss this in more detail in a moment.
Having The Right Mindset
The last thing that you need to start with as a trader is having the right mindset. When it comes to trading it can be simple, but it’s not easy.
You want to make sure that you understand that trading is a profession. There will be great days when you’re celebrating and make great trades. But there will also be days when you’re looking at your account and think that nothing is working.
Additional Resources To Help You Get Started
I want to give you a few resources to help you dig deeper when getting started. I did a video called How To Build A Trading Plan That Works. This video will help you start building a successful trading plan. Also, in the video’s description, there is a link you can use to get a free copy of my trading plan template.
This is a step-by-step document where you write down your goals and your preferences regarding your risk level. You’ll also write your time horizon, availability, what markets you want to trade, and how much capital you have.
Before we continue, this article is a part of our Options 101 For Beginner Series. This is a series of FREE on-demand video courses where you will learn the building blocks of options trading, the core concepts, how to avoid crushing mistakes, and much, much more. You can check out this free course HERE.
Starting With A Solid Trading Strategy
Let’s talk about a trading strategy. It doesn’t have to be super complicated, and there’s no shortage of trading strategies out there. If you use Google or even YouTube to search for a trading strategy, there are a gazillion.
Which one do you choose? If you have been following me for a while, then you know that I like to trade the PowerX Strategy and The Wheel Strategy. These are only two of all of the choices that you have.
Why is selecting a trading strategy that is right for you so important? As I mentioned, I like to trade the PowerX Strategy and The Wheel Strategy. Of course, there are a plethora of other trading strategies, and I’m not saying that you have to trade either of these. What I am saying is you need to find something that works for you because it is the most important thing.
Every trader is different. This is why figuring out your preferences is a part of the trading plan template. You need to ask yourself, how much of your account are you willing to lose? When do you pull the plug? Are you willing to actually risk 20-30 percent of your account? Or are you a more conservative trader who is more concerned about drawdowns?
Risk vs Reward
Based on this, you need to find a trading strategy that fits you. For me, there are four main requirements, and one of these is what the risk of the strategy is. What kind of risk can you assume? With The Wheel Strategy, there is some risk involved, but it also has some nice returns.
It is important to understand risk vs reward when trading. It’s basically like a curve. The more risk you’re willing to take, the more you can expect returned.
If you’re very risk-averse, and only want to risk a few percent, you will also make a few percent. You might not even outperform the S&P index, instead of buying an index fund.
If we take a look at the S&P here, there are times when it goes down as it did around April or May of 2020. We saw a drop of about 30%. There is risk involved when trading, so make sure that you are aware of this.
Other Requirements To Consider
Then there is also the capital requirement to consider. Based on your account size, certain strategies might not be suitable for you.
You must also take into account the time requirements of each strategy. It’s great if you find a day trading strategy that you love and fits all your risk parameters. But if you can’t sit in front of the computer all day long, then this is not a good strategy for you.
More Resources To Help You Get Started
Here are a few resources to help you dig even deeper.
The first is a complete-guide video on The Wheel Options Strategy. You can watch the video and see if this is a strategy that might fit your risk parameters.
There is also The Ultimate Guide to The PowerX Strategy. It’s another video of about 20 minutes that you can watch.
For the third video, The Best Trading Strategy For 2020, I compare these two strategies. I did this video in 2020, but it is still current. I talk about the differences in terms of risk, return, capital requirements, and time requirements. These are the four most important criteria when selecting a strategy.
You Must Have Powerful Trading Tools
Now let’s talk about trading tools. The reason why this comes after selecting a trading strategy is, you want to find a tool that supports it. Different tools are designed for different strategies.
When finding the right trading tool, please don’t bring a knife to a gunfight. When trading, you’re trading against other traders. You’re trading against the brightest minds in the world. Some people think it’s the bulls vs. the bears in the markets. The guys that have a lot of money vs. the guys who have a little money. And that’s not true.
When it comes to the market, it is the educated people versus the uneducated people. Those who invest time in learning how to trade properly. Those who have the right tools and the right mindset vs those who have neither; the kind of people who open an account with Robinhood or WeBull because they get a free stock.
This is why it is important to have the right trading tools, but what tools you need depends on the strategy.
What trading tools do you really need? I’m only using two tools right now.
One of the tools that I use is TradingView. This is a charting software that you can use, and here is a playlist of videos where I explain how I use it.
The PowerX Optimizer
Then, of course, I have the PowerX Optimizer that scans for the best stocks and options to trade. With this software, it goes back to the 3 questions a trading strategy is supposed to answer:
What to trade? When to enter, when to exit. This is what PowerX Optimizer does for me.
Based on the trading strategy that you decide to use, the tools might be different. Make sure that you have tools that support your trading strategy.
If you would like to learn more about what I’m doing, you can learn about My Trading Routine here.
What Broker Should You Use?
The next thing you need is a broker. For the past two years, lots of people promoted brokers because then they got a kickback or free stock. You might have heard your friend telling you to sign up with Robinhood or WeBull.
Doing this is like a lottery. You could be lucky and get a really expensive stock, but most of the time it was around $10-$30. This is not how I think you should select your broker. It all depends on your trading strategy.
As an example, if you want to day trade futures, Robinhood is not for you. They’re not offering futures trading. First decide on your trading strategy, because the strategy is answering the question “what to trade.”
As I’ve mentioned, the strategies I trade are The PowerX Strategy and The Wheel Strategy. I did a video where I compared some brokers for my needs trading these strategies.
The video is called Best Brokerage Account 2021 Which Zero Commissions Broker Should You Use? In the past, I used Tastyworks. Right now I’m transferring everything over from Tastyworks to Tradier.
Now, I’m not saying that Tradier is the best broker ever. It depends on you.
I did a comparison based on the results of the past year that I did, and I looked at how much do I pay in commissions? How often do I get assigned? Is there an assignment fee? How much are transfer fees, if you’re transferring money in and out of your account?
What Can You Expect When You Start Trading?
How much money can you actually make? I always get questions like, “Say I start with $5,000. Can I turn this into $100,000 by the end of the year?”
This is not how it works, at least not the way I trade. There are people who go to Vegas with $100 and come back with $20,000 because they got lucky. But there are also people who go to Vegas with $20,000, coming back with $100.
You need to have a strategy. When trading, you don’t want to trade just for fun or because you’re bored. What you can expect really depends on your trading strategy.
I keep coming back to this because a trading strategy is a cornerstone to your success as a trader. The PowerX Optimizer scans for stocks that have proven in the past to make at least 40% a year.
When you’re trading options it might be a little bit more, but look for around 40-50% per year. With The Wheel Strategy, we are targeting around 30% per year.
When you’re using a margin account, you’re basically doubling your buying power. This would also mean that you are doubling the expected return, so 60% when using margin.
Trading With Margin
When using margin you are taking on more risk. Make sure that you know how to use margin responsibly.
I did a video on margin that explains what it means to trade with margin and whether it’s right for you. I’m targeting 60% per year with The Wheel Strategy (which would only be 30 percent with just a cash account).
Here is another video for you called Trading For A Living – How Much Money Do You Need? This video also answers the question, how much money can you expect, and how much do you need to start trading.
Can you start with $2,000, $5,000? Do you need as much as $25,000?
Practice With A Trading Simulator
After you learn the trading strategy, get the tools you need in order to trade this particular trading strategy. Then get familiar with the tools.
Again, it might be that you choose to get PowerX Optimizer. It might be that you choose to use TradingView. Might be that you’re choosing to use some other tools. The important thing is that the tools are absolutely useless if you don’t know how to use them.
You know this cliche where they say it’s like driving a Ferrari in first gear. You want to make sure that the tools you choose are supporting your trading strategy, and that you’re not “driving the Ferrari in first gear.”
This is why I recommend practicing on a simulator, and that you do at least 40 trades. This way you get a better feel for the strategy. You’ll see different market conditions, and experience the risks which is better when it is just paper money.
Choose a Broker And Fund Your Account
Once you’re familiar with this, choose a broker and fund your account. Get familiar with the broker platform.
You want to make sure that you know how to place an OCO order if the strategy calls for this. How to place a GTC order, a stop order, a limit order, a stop-limit order, and anything else you might need.
Having The Right Mindset
When you first get started with live trading, start small. There is no need to start big, even if you have $100,000 that you could allocate for trading.
Start with $10,000 or $20,000 or whatever the trading strategy calls for. Because even if you practice on a simulator, it doesn’t really show you how it feels, right?
As traders, we do have emotions. Now, you should not act on your emotions, but there will be some days where you say, “This is awesome. I love trading. This is the best thing ever.”
And there are other days when you say, “Oh my gosh, I’m ready to give up. I will never make it as a trader.”
This is where it comes back to the mindset and why it’s important. So start small and then grow big. You can always add money to your account later on as you grow.
Stock Market For Beginners 2022
This is my stock market update for Beginners in 2022, and I hope you found it helpful.
If you would like to learn more about my Trading Routine which takes me less than 15 minutes a day, you can check it out HERE.