Finding the right type of trading for a novice trader is difficult. Johndeo also had a hard time looking for the exact type when he started trading.
The best type of trading for beginners is end of the day swing trading. For entries, he should only buy when the candle is red and sell when the candle is green.
Taking positions should only be at support and resistance levels. Exits should be determined and should be based on the strategy he has chosen.
All beginners should start their trading virtually and then they can proceed to actual trading. Most traders fail because they turn directly to real trading.
First, they need to practice their selected strategies without losing any money, because in the real stock market, everything will be different for them.
The market will become scary for them, and they will have a hard time executing their trades.
For example, when the stock price falls down by 5%, most beginners would panic, and they do not know what to do next.
Beginners should master their trading strategies before actually placing their money in the stock market.
Where can one get good trading strategies? Anyone can get it from a successful mentor, but he can also do it himself which will take a longer time.
Swing Trading – End of the day
In the previous post, “Recommended number of stocks in a watch list”, there is a simple swing trading strategy which can help any trader.
The strategy is not popular but offers early trading entries and exits. It’s best for beginners, because screening stocks happens only at the end of the day.
Traders can create their own watch list, and they can trade during the day.
When trading off market hours, beginners don’t have to deal with the volatility of stocks. They can manage their emotions because the price is not moving.
Unlike during trading hours, when the stock prices are flashing through their eyes, they can analyze the stock charts, without fear.
They can take their trades the next following trading day easily, because they know what to do.
Now, if a beginner starts day trading, he will make many mistakes because of his limited skill.
His trades can destroy his trading account because intraday trading is too volatile.
There are also many swing trading tutorials online, yet most of them do not work. People should backtest their strategies online before using them.
Note: Amibroker is an example of a back testing software. Please go to our screener page to see it in action.
Day trading is not good for beginners, because it is too volatile. Most people lose their money in the lower time frames because of uncertainty.
Nobody can predict where the market will go and most beginners will have difficulty. Watch this video to learn how hard day trading is.
It does not mean that long term trading is better than day trading.
How does a typical beginner handle winners and losers?
Well, they generally have difficulties holding their winners than losers. They usually hold theirs stocks even though their stocks are down more than 10%, and they become a long term trader.
The real truth is that the stock market system is built to lure a lot of traders, and take away their money.
So, what does big brokers and institutions do?
They buy market data to take money from the 95% losers. All they have to do is bet against all of them to make money. (source)
It is smart to follow big brokers and hedge funds instead, and broker plays is better, more details below.
This is an old strategy that almost no one talks about, because most people are focused only on technical analysis.
Beginners can use this dividend capture strategy easily. When a company make their cash dividend announcement, its stock price normally rises because of trading demand. (source)
Beginners can buy the stock one month before its ex-date and sell at the ex-date. The strategy is about riding the price move, and then the trader waits to get the dividend.
However, some people buy 15 days or lesser before ex-date to reduce the holding period.
The risk becomes bigger the longer people hold its stock positions. Novice traders should remember this rule.
Johndeo recommends buying only a stock if its price is at support and only if it is trending upward. Furthermore, traders should consider only liquid stocks.
He wants to be able to exit his positions immediately at the ex-date.
How can one execute this strategy?
All stock markets have their own dividend calendar. Traders can take a look at it in advance to find possible trades.
Most trading platforms have historical broker’s transactions. A novice trader can follow big brokers and institutions, and then he can buy around significant stock prices.
For example, people can buy at swing below the average buy price of the brokers, for example, data from Credit Suisse, JP Morgan and others.
There are other brokers one can use, but they must be profitable.
In the previous post, Johndeo recommended eliminating cross trades from the historical transactions to come up with a better analysis.
- 3 Types Of Trading For Beginners
- The 5 Steps Process To Avoid Being Classified As A Day Trader
- The 5 Steps Process To Back Test Ichimoku
- The Complete Beginner’s Guide To Use RSI Effectively In Trading
- The Complete Guide To Buy Stocks After Ex-Dividend Date
- The Complete Guide To Measure A Bull Flag(With Illustrations)