While you might have heard about trading losses, you might have also seen many traders posting videos about how they make millions by trading.
This can leave you feeling confused and really scared of losing your capital.
This situation has been the experience of almost everyone in trading. If you find yourself in this position, don’t worry.
You will definitely reach your goal if you are determined and learn from your mistakes.
Just remember that the time required to achieve those goals may vary.
That being said, one of the reasons for failures in trading or confusion when starting is a lack of knowledge.
In trading, it often boils down to not having enough knowledge about concepts like trading strategy, money management, and emotional control.
While money and emotional management rules apply to almost everyone, a profitable trading strategy depends on your personality type.
Finding your strategy is a crucial step in trading but not necessarily the most difficult, I would say.
Once you understand the market and its characteristics, you will discover your logic in a particular strategy and become an expert in it.
But gaining that expertise requires sufficient trading experience.
To start the ball rolling and generate some income while practicing your strategy, you can begin with any beginner’s strategy.
In my opinion, the easiest trading strategy is to follow the trend and engage in swing trading in stocks with a risk-reward ratio of 1:1.5.
If I had known this earlier, I wouldn’t have experienced losses. Although not substantial compared to others, these losses made me doubt my choices and contemplate leaving the field.
So, to avoid losses and gain valuable experience, you can try the following tips..
How should I start?
Begin by investing
Don’t jump straight into trading. Start by investing a very small amount, either as a lump sum or through SIP (Systematic Investment Plan).
Purchase stocks from reputable companies and hold onto them for now. Don’t even think about selling them.
As you see your account growing, you’ll gain both confidence and some profits to back you up.
Only start trading when you have some financial backup. This will eliminate emotional barriers arising from financial needs.
Swing Trading
Now, after gaining some experience, start swing trading.
Buy and hold onto stocks for days until you reach your target.
Avoid starting with scalping or day trading, even if your personality seems to suit these trading styles.
Practice with swing trading first, and after earning a consistent income, you can experiment with other trading styles.
Choose Your Asset
Now that you know how to trade, consider what you should trade.
While assets like options, futures, commodities, forex, and crypto may be attractive due to their profit potential, they are not ideal for beginners.
You’re likely to incur more losses in these assets, and it’s also challenging to grasp more advanced concepts at the early stages.
Stocks are the safest way to trade without incurring significant losses.
Pick a stock, buy it, and hold onto it until you reach your target.
Management
The other two things you need to learn after your trading strategy are money management and emotional control.
To avoid total loss, you should learn about simple but effective concepts like risk-reward ratios, loss per trade, and trading psychology.
To delve into these concepts in detail, read the following posts:
Understanding Trading
Now, having said that, the crucial thing to understand here is the nature of the stock market.
Stocks move randomly, much like people’s opinions. So, there’s no 100% accurate way to predict the market.
Losses are inevitable, but how you manage your losses is the key to success.
Minimize your losses and maximize your profits.
This should be the motto of trading or any kind of business.
So, what is the easiest trading strategy for beginners ?
Now that you know how to trade and manage your capital, it’s time to understand some basic concepts.
Stocks typically move in three directions: upward, sideways, and downward.
Continuous movement in an upward or downward direction is called a trend—either uptrend or downtrend. Trends usually start after a period of consolidation or sideways market.
To identify if consolidation has ended and a trend has begun, we use a moving average indicator.
This indicator calculates the average of a specified number of past prices.
For example,
(10 + 15 + 20 + 25)/4 = 17.5. The first data point for a 4-period simple moving average (SMA) would be at 17.5.
Then if the stock moves to 30, the 2nd data point would be (15 + 20 + 30 + 35)/4 = 25.
Now a moving average line is formed between the between 2 data points at 17.5 and 25.
So, as the price moves, it forms a continuous line showing how the stock moves. Moving averages come in different types, but we’ll stick to the simple moving average.
Stock Selection
First, you need to select stocks.
You can do this manually by reviewing all available stocks or use screeners like Chartink.
I have created a simple scan that looks for stocks meeting these conditions: 10 SMA crosses 20 SMA but remains above 50, 100, and 200 SMA.
Setup
Now, open a charting platform like TradingView or your trading platform’s chart and enter the stock name in the search bar. Observe how the stock has been moving for a specific period.
Now is the time to add the moving average indicator.
Go to the indicator menu or any symbol denoting it.
Type “moving average” and set the value to 10. Leave other details the same and ensure it’s set to “simple.” Repeat this step for 20, 50, 100, and 200.
That’s it. This is the complete setup for your trading. It should look something like this.
This is the chart of BEML. Notice how the result of my price action strategy is similar to the moving average strategy.
Strategy
Now, enter a trade when the 10 SMA crosses above the 20 SMA, and the 20 SMA remains above the 50, 100, and 200 SMA.
Exit the trade when the 10 SMA crosses below the 20 SMA. This serves as both your stop loss and target.
This strategy is best for beginners, as the moving average itself can be used for entry, stop loss, and target.
Analyze Why and How Everything Happens
After learning about the strategy, backtest it to determine the win rate. Practice demo trading for a few months to see if it suits you. Learn how everything works in the market. Then, start trading with a small account, and gradually increase your capital.
Find Your Own Strategy
After gaining confidence and earning profits, you can experiment with other trading styles. By then, you’ll understand how and when stocks move.
*Remember, trading involves risks, and it’s essential to continue learning and adapting as you gain experience in the market. Good luck with your trading journey!
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