Learning to trade can be difficult but there is no better time to dive into it than during a bear market. Trading is considered to be much easier during a bull market and people soon suffer from an inflated ego as they very quickly become the best trader in the world. Bear markets can be a huge reality check and that’s why it is true that if you can trade profitably in a bear market, you’re well ahead of the majority.
When I started to trade I struggled to filter through the vast amounts of resources that are available. It was difficult to decipher what was good advice and what wasn’t. The purpose of this article is to try and give some solid advice for those who are relatively new to trading by sharing 10 tips from my own experiences that can hopefully help you in your own trading journey. I would like these to be seen as shortcuts that you can take by learning from my experiences and mistakes.
1- Establish what type of trader you are
This is an important place to start. You have to identify a strategy and at the top level, you have to establish what type of trader you are. Some examples could be a swing trader, an arbitrage trader, fundamentals trader, a scalp trader and so on.
Many different variables may impact the trader that you become but some general advice here would be to make this decision based on two factors:
a) What genuinely interests you the most. If you hate the sound of it, you likely aren’t going to put the effort in that is required to be successful.
b) What works for your lifestyle. Dave has an intense 12 hour day in the office. He then comes home to 5 kids and a dog. Realistically, he‘s going to struggle to find the time required to be a successful scalp trader.
Keep in mind that it could be that the first thing you try just isn’t for you. Do some research, take an educated guess at what you think will work best and give it a shot. The worst case scenario is that you learned some stuff along the way and you move on and try something different.
2- Technical analysis isn’t as important as risk management
When people with little knowledge think trader, they probably think fancy squiggly lines on a chart that are used to predict the future. Now technical analysis is extremely important for many traders, but not as important as their risk management. The ability to plan appropriately to survive and then thrive is often overlooked. It’s not pretty but it is essential.
Risk management is the boring and tedious stuff that nobody wants to talk about. In a nutshell, it’s measuring how much money you can potentially lose in a single trade vs the potential upside. It’s also ensuring that you are managing your exposure to the markets appropriately. A good consistent trader may risk 1% of their account per trade, as an example. A complete degenerate however, may risk 100% of their account per trade, blow it and reload the account the next day. This is what separates traders from gamblers.
3- Have a set of rules and stick to them
Any successful and experienced trader will have a set of rules that they stick by when taking and managing a trade. The reason for applying these rules is often to avoid making mistakes based on emotions. Trading should not involve your emotions and having a set of rules that you must stick to does help.
Now as a beginner, you have no rules and may not know where to start. Firstly, it’s going to take time to build these rules and they can be forever changing to adapt in the future. However, to even make a start, I believe that you have to start trading, reflecting on these early trades, begin to spot patterns and allow these observations to shape your rules through your own experiences.
Examples of trading rules:
- Always use a Stop Loss.
- Only risk 1% per trade.
- Take a 24hour break if 5 consecutive losses.
- Don’t enter new trades on weekends.
As well as becoming an emotional trader, the other danger of having no trading rules is that you’ll never build any consistency. There is no right or wrong when it comes to these rules, it’s what works for you and your strategy.
4- Using a trading journal
This next one is linked very closely to having a set of rules. Using a journal is another crucial part of trading. It’s not the attractive side of trading but again, essential. Journals are used to track a number of details of every trade that you take. Some common examples are:
- Time and date
- The pairing
- The timeframe
- Long/Short
- Entry/Stop/Target(s)
- Reason for taking the trade
- Screenshot of the chart (if not using pen and paper)
- The outcome
- Comments/Notes
Whether it be on paper, using a spreadsheet or some fancy software, journaling is important to provide you with data. If studied correctly, you will start to see trends and figure out what has been working for you. It could show you that trading a specific direction has an impressive strike rate or that you’re absolutely awful at trading when focusing on the 1H timeframe. Looking back on data will help you improve when you can spot these trends and see the facts to back it up rather than just ‘having a feeling’.
5- Do not touch leverage
You may have heard this one before but it’s so important that you hear it again. You have absolutely no business using leverage. Now you might be thinking, but people on Twitter use leverage? 90% of them probably shouldn’t be using leverage either.
Leverage trading enables people to trade with larger amounts relative to their account. Some exchanges offer leverage of over 100x their capital and with that comes dangerously close liquidation prices. When used responsibly, it’s a great tool and can be used to prevent having too much capital on centralised exchanges (we recently seen the importance of this). However, it is often abused by people who want to get rich quick and more often than not, it ends badly.
Spot trading is more than adequate for you as a beginner and will be for a long time. Trading spot decreases the chances of you blowing up your account. Understanding leverage is just one more thing that you don’t need to worry about when you already have enough on your plate.
6- Understand what the market is telling you
This mostly comes down to identifying trends but remember that all of this is relevant to the type of trader you are and your timeframes. If we are in choppy conditions, does your journal tell you that this is optimal trading conditions for you? What about in a long term downtrend, is that more favourable?
So now is the point when we start to piece all of this together. Being able to understand what the market is telling you comes with experience. It’s having the knowledge to identify specific market conditions and trends. On a higher timeframe, it’s clear that we have been in a downtrend (bear market) for a year now. However, this is irrelevant to a lower timeframe trader who can profit from being bullish at the right times (during a bear market rally for example).
Like I said above, maybe the market is ranging and is choppy. You look at your journal and see that trading ranges is actually very profitable for you, so you understand that the market may offer you an opportunity. Keep in mind that your journal would help you see this, because you have genuine data to back this up. Trading should always be based on numbers, it’s a game of probabilities, not feelings.
7- Don’t let your emotions impact your trading
We touched on this earlier but it’s so important to keep emotions out of your trading. Besides from having an impact on your decision making, your emotions can cause many more problems. If you can’t sleep at night because you have a trade open, you’re emotionally impacted by your position. You’re likely over exposed (and breaking your rules) which is not ideal. If you don’t enter a trade despite your rules being met because you’re scared of losing, you’re also emotionally impacted. There is no room for this kind of behaviour in trading.
A great book that I read to help me understand the game that we are playing is Trading In The Zone by Marc Douglas. This book helped me see trading through zero’s and one’s and shaped me to become much more robotic when trading.
If you can’t overcome your emotions and it’s having a negative impact on your trading, you do have to consider the possibility that trading might not be for you. It isn’t for everyone and that’s okay. You might discover that investing is better for you and this is actually the case for the majority of people who fall down this rabbit hole.
8- Don’t let Crypto Twitter influence decisions
Twitter can be a blessing and a curse when it comes to crypto and more specifically trading. The resources on Twitter can be amazing if you’re looking in the right places. The downside is that it can be fucking awful if you end up in the wrong places.
When it comes to trading, I do think that Twitter can be useful for things such as prompting you to take a look at a specific coin or set up, maybe you find information that you wasn’t aware of such as an event that could impact the markets. What it shouldn’t be used for is to sway your decision making despite your rules telling you otherwise. Someone is always going to disagree with your idea. If you enter a trade based on your rules, stick with it and regardless of the outcome, learn from it.
9- Utilise alerts to your advantage
This seems so simple yet so important. Alerts can be extremely useful for entering and exiting trades but also for managing them. Before I explain how I utilise alerts to my advantage, I will say that there are many free alert tools and apps for you to use. It isn’t hard to find them.
The purpose of using alerts is to ultimately decrease screen time. You don’t need to be looking at charts for 12 hours a day to be successful as long as you have a smartphone (again, relevant to what type of trader you become). If you want to enter a trade but don’t want to use a limit order for whatever reason, you can set alerts to trigger a notification if price interacts with that level or area. If you’re already in a trade and have your stop loss set but want to manage the trade much closer if price hits X, then you can set the alert to trigger there as well. These are just a couple of examples but you get the point.
At some point you are going to have to leave the house whilst having a trade open. If you have access to your trading account and an alert app on your phone, then you’re never going to get stuck or caught out.
10- Start small but treat it like $1million
It might be last on the list but this is probably one of the most important tips. Originally, I used to think paper trading or trading with a demo account was a great way to learn but through experience, I believe trading with at least a small amount is better. Why? Because you have nothing on the line with paper trading and it can be hard to take it serious.
Now, it can also be hard for some people to take trading with a small amount seriously so all I can suggest is using just enough to make it meaningful if you can afford to do so. Regardless of the amount, the key is to treat it like its 1 million dollars.
This will help you become the trader that you want to be. It will help you gain experience when it comes to emotionless decision making, being disciplined as well as many more important traits that a trader needs.
Conclusion
There is a hell of a lot more to trading than this 8 minute article but it’s something to reference in the future and a place to start for many. With that being said, nothing beats experience. Keep trading even if it is with smaller amounts and have the humility to look back at your journal and accept where you have been going wrong or where there is room for improvement. If you are stubborn or think you are always right, the market will humble you.
The bottom line is, there is no one size that fits all and we must always keep learning.
FYI — I will be writing regularly again. Feel free to follow on Medium for more content but also on Twitter and Telegram where I will share when these articles are released.
Lastly, this article should not be considered as financial advice and has been written for educational purposes only.
