Back to Basics: How traders can work smarter, not harder
Back to Basics: How traders can work smarter, not harder
Written by Katie Gomez
With a recession looming, letting emotions get the best of us is normal. You might be stuck wondering what else you can do to stay ahead and what extra lengths you can take to survive, but the answer may not be what you think. There is nothing extra or new you must learn to get ahead right now. Instead, you need to focus on keeping things simple, stop overthinking and return to the basics to keep your head above water during the possible recession tsunami headed our way. Stop focusing on or worrying about the bells and whistles, such as new software, programs, computers, or trading setups, and start focusing on the fundamentals of stock trading. If there were a slogan to recognize those who become successful using the stock market, it would be “work smarter, not harder.”
“Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”
Warren Buffet is one of the most successful businessman investors of all time. He continuously stands by the claim that those who avoid the flash of erratic moves, who keep it simple and work consistently, are the ones who are usually overlooked but are the ones who find the most success in their ventures. As long as you stay consistent in your trades and follow these essential tips to success, you will eventually find yourself on the lucrative side of this recession. So what are the fundamentals of stock trading that you should be focusing on during these tumultuous times?
1.) Do your research. Ensure you lead with your evidential support and critical thinking before making decisions. It would help to research the companies you are interested in thoroughly; analyze their financial statements, history, predicted timelines, relations with other companies, etc. You should not make any trades without due diligence first; that does not include trusting whoever recommended the trade to do that research for you.
2.) Develop a trading plan… and stick to it. It may sound like a broken record, but you only harm yourself by constantly deviating from your plan. You will eventually go bankrupt if you let your emotions run your trades. Behind every good trader is a clear, sustainable, and specific trading plan that outlines their objectives, risk tolerance, and investment strategy.
Once you create a strategy to achieve your goals, don’t abandon it when things get scary or seem like they are not working; stay the course and trust in the logical, sustainable plan you created. Without a plan to follow, your trades will become erratic and ill-purposed, focusing only on immediate gratification. Play the long game, stick to your plan, and try not to sweat the small stuff along the way.
3.) Risk management. Learning to manage risk is one of the most basic yet crucially essential factors of success in the market. Successful traders aren’t afraid of taking risks because they have a plan to help limit their losses and focus on long-term sustainable growth. You have to be willing to suffer losses if you want to take considerable risks to benefit your portfolio. Utilizing a stop loss order is an excellent example of risk management techniques designed as fail-safes to help limit losses that you should include in your trading plan.
4.) Monitor market conditions. Many traders make the mistake of focusing on what they think will happen and take their eye off the ball: the market itself. The constant fluctuations of the market can create dramatic gains or losses yet are not usually incapable of prediction. That said, it is crucial that a stock trader monitor market conditions by keeping up to date on any news or events that could potentially affect the market, especially in the case of individual stocks.
5.) Keep a trading journal. How can we be expected to learn from our mistakes and grow into better traders if we can’t even remember them? By keeping a trading journal, we can better analyze our overall performance as a trader over time. For instance, a journal allows us to keep track of our periods of trial and error and showcase our good and bad trading decisions, monumental or minuscule mistakes; the more self-awareness we can embody, the more successful we can become.
6.) Diversify, diversify, diversify your portfolio. Avoid focusing all your investments on a single type of asset or investment. Prioritizing individual stocks is not only an example of mismanaging risk and funds; it also puts your entire portfolio in danger if one company goes awry, and those chances can be high. Individual investments are essentially sitting ducks awaiting their fate because you have no security, protection, or ways to defend your assets when that happens. The worst thing you can do as an investor is put all your eggs in one basket.
Honing our attention back to the basics and ensuring we are still on the right path is the best thing we can do in these uncertain times. We must focus on what we can control, and what we can control are the above mentioned fundamentals. These basics are based on the foundation of self-awareness and self-reflection, tools not often used by many of us. Taking the time to reflect on what is going wrong and right at this time in our journey is the key to continuous improvement.
The stock market is constantly changing, so as traders, we must stay up-to-date on market trends and learn as much as we can, encompassing a student mindset, eagerly absorbing as much new information as we can, even when we “think we know everything.” The basics are the foundation of any practice, so even if it means checking your ego at the door, we must take the time to routinely ensure that we have not become distracted and lost sight of them along the way.