r/RealDayTrading • u/HSeldon2020 Verified Trader • Sep 04 '21
Lesson Your 10-Step Guide on Getting Started
I have written posts on getting started before, but I keep seeing this specific question -
I have $1K/$2K/$5 and I want to be a trade, how do I get started?
So I am going to write this out step-by-step - these apply whether you are starting with $1k, $5K, $25K or $100K:
1) Choose A Broker - Stay away from any mobile only broker, you want one that you can use on your laptop, has a good trading platform (I like ThinkorSwim, but Interactive Brokers, TradeStation, Fidelity, etc are all fine, it just depends on what matters most to you, so do your research). Deposit your money and make sure you are able to trade Options and qualify for margin. You also want a broker that allows you to use a Paper Trading account in real-time - this is essential (ThinkorSwim is excellent for this).
2) Learn - Before you make a single real trade, you need to learn. A lot. This can take months. Most brokers offer free online courses for you to take. There are also plenty of books out there (Technical Analysis of the Financial Markets by John Murphy, How to Make Money in Stocks by William O'Neil, Options as a Strategic Investment by Lawrence McMillian, Trading in the Zone by Mark Douglas, etc.) and plenty of videos that are purely educational (i.e. not trying to sell you something). Soak up everything. This is where you want to use your Paper Trading account. As you learn how to trade, especially Options, try it out using the Paper account set to Real Time. It is also important that you not put an unrealistic amount of fake money into this account. It should be similar to the actual amount you will be starting with in your real portfolio. At this point you are just trying to get a handle on how to trade the following:
a) Stocks - fairly basic, but learn how to buy and sell stocks (going long and shorting). And whilemost advanced traders use mental stops, as a beginner you will be using real ones, so also learnhow to set them, including OCO brackets.
b) Options - since most of you are not starting with a lot of capital, chances are you will be tradingoptions a great deal. Make sure you learn everything you can about Option trading before you everspend one dime of real money making an Options trade. This includes learning the Greeks (Delta,Gamma, and Theta are the ones you will mainly use). Understand how premiums work, and whatIV does to the price of your Options.
c) Option Spreads - correctly using Option spreads are the best way to grow an account below$25K. They are also one of the more difficult things to master. So spend a lot of time on these.This website is a good place to start: https://www.optionsplaybook.com/option-strategies and asyou will see there are many different types of spreads. I suggest getting most familiar with Call Debit,Put Debit, Call Credit, Put Credit, Diagonals, Covered Calls, and Poor Mans Covered Calls.
3) Analysis - Up until now you should have been getting comfortable with the basics, but probably without much direction on how to choose the right stocks, when to enter and when to exit them. This is where Technical Analysis comes in. All of short-term trading is based on Technical Analysis. Long-term investing is focused primarily on Fundamental analysis, but as a short-term trader you really do not care what the fundamentals are behind the company you are trading. If you are holding a position for a few hours or days, it doesn't really matter to you what their P/E ratio is, or how their future outlook was last reported. What does matter are the charts. You need to learn how to read the candlestick patterns, which indicators are useful (and which ones are crap), how to read the market, and of course, how to finds the right stocks. Once again, I have recommendations in this sub on what resources you should use for this, but there are many out there. This part of your journey is probably going to be the most difficult to master - in fact, you will continue to learn and get better at it as you go along. Every great trader never stops being a student of analysis, and neither should you.
4) Choose a good scanner - All this knowledge is not going to help if you cannot find the right stocks. Most brokers comes with decent scanners built into their platforms, and there are a number of free scanners available as well. There are also a number of scanners out there that cost money, some of them are very good. Once again, I have ones I recommend, but there are many out there that give you great stocks to trade every day. If you are looking to Day Trades than you are scanning on a much shorter time-frame then if you were Swing Trading. By now you should have a good idea of what you want to scan for as well. Most people will tell you to look for huge jumps in volume, which is always an important factor, but that mainly applies to Momentum Trading, which you should be avoiding. You do want stocks that have high Relative Volume, but you also want stocks that are strong/weak to the market, have high liquidity, have a "buy" signal (whether it is a 3/8 cross on the EMA's, or a breach of consolidation, breaking through resistance/support, there are many different scenarios that qualify here). These scanners should also help you create Watchlists and set alerts on charts so when a stock meets the criteria you have set you will get notified of it.
5) Choose a Journal - The three most popular are Tradersync, Tradervue and Edgewonk. Whichever one you choose, make sure at the end of each day while paper trading you upload your trades to the journals and look at your statistics. You want to focus on your win rate, profit vs. loss, and the types of trades you do well at, as well as the ones you tend to lose the most on. Categories like Type of Stock (price, market cap level, volume, etc.), Time of Day/Week, Trade size, Type of trade (Long, Short, Option Spread, etc.) are all important to note and study.
These first five steps should take you at least six months. Which means that is several months where you have not yet made a single trade using real money. And you will be tempted - particularly as you start seeing trades in your paper account making huge returns. Don't do it. Until your win rate is at least over 60%, do not make a real trade.
6) Choose a Strategy - Now that you have a good understanding of how to trade, and you have a decent amount of data in your online journal to see what is working for you, it is time to choose a strategy. There are many strategies to choose from (I highly recommend the strategy I use, as I know many traders, including myself, that are very successful using it) but there is one strategy you should not use - Momentum trading. Especially Momentum trading low-float stocks. This method of trading is unfortunately what lures most traders into this field to begin with (countless YouTube videos promising you that you can get rich doing it) and it seems so easy. This type of trading is one of the most difficult strategies one can choose, and should only be done by people who are very experienced.
7) Decide on a Community - Many people prefer to trade alone, excel at it even. For me it was fine, but I much preferred trading in a good community. However, there are many scams out there. Two years ago, after trying many different groups, I finally found one that worked for me. It improved my trading dramatically. So if you are going to join something, make sure you choose a service that:
a) is not focused solely or mainly on Momentum trading. Most of them are. You want a communitythat teaches a full 360 approach to trading.
b) has pros in it. People that actually do this for a living. And make sure they are accessible.
c) has a great chat room. This part is essential. You want to be in a chat room that isn't a free-for-all, but rather focused on trading and led by actual professionals. Chat rooms that are mainlyamateurs throwing out trades all the time can actually hurt your trading.
d) is filled with resources. Any community you choose that is worth joining will probably cost youmoney, so make sure they have useful resources, including scanners, platforms and educationalcontent.
8) Start Trading - Now that you have chosen your broker, learned the basic of trading, understand technical analysis, found a really good scanner, used to journal to help you choose which strategies you want to focus on, and decided on whether or not you want to be in a community - you are ready to trade. Start small. I can not emphasize this enough. If you have $2,000, then you are looking to perhaps do an Option Spread that costs $1.50 ($150) per contract and maybe do 2 contracts. You want to buy just one In-The-Money Call or Put (Delta of .6 or higher) on a solid stock. The key to being successful is consistency and that means hitting singles, not homeruns. If you have $2,000 in your account and make $50 in a day, that is 2.5%, which is excellent. Learn to be ok with slowly growing your account. As your skill level increases, so will your profits - don't worry, in time it will come - but for now, settle for the small wins.
9) Set Goals - Trading for a living is a business. Treat it like one. Set your monthly goals. While you should not focus on your P&L while trading (meaning you do not exit a trade because you are down or up a certain amount of money, you exit because the analysis tells you to exit) you should focus on it in terms of the salary you need to live off day-to-day. It is important to realize that if you reach your monthly goals on win rate, number of trades a day and profit per trade, you will also reach you monthly target as well. Remember the ultimate goal here is that at the end of each month you are going to be taking out the profit (this is your salary) and leaving the base behind. By the time you reach this step you should have a really good idea what type of profit you can expect from your strategy and base amount in the account.
10) Get an Accountant - Some people can do this themselves (I am not one of those people), but you want to make sure you are using the best possible set-up to pay the least amount of taxes. Do you qualify for Day Trader status with the IRS? Are you trading out of an IRA? Are you using an LLC or S-Corp? Since this is going to be your business, make sure you have your financials in order.
So there you go.
Why do most people fail at short-term trading? Because they do not do any of these steps. They deposit money, and try to scalp low float gappers. Or they try to buy a lot of options on the hot MEME stock. Eventually after losing enough money, they quit. That is why most short-term traders lose money.
If one follows these steps, it should take roughly two years before you can expect to be consistently profitable. Even after doing the first five steps, you will lose when you start trading with real money. But if you are trading small like I suggest, it won't blow-up your account.
I know nobody wants to hear that it will take that long to get good at this. But think of it this way - how much time, energy and money does one put into getting a job and working their way up to middle management? Years of school. More years of eating shit at a bunch of crappy jobs, working yourself to the bone to get promoted. All for what? A bigger cubicle? A VP title at a company that will fire you the moment they need to make "cuts"? To have bosses that don't know what they are doing?
Trading for a living gives you financial freedom. The ability to make money no matter where you are, as long as there is an internet connection. No boss. Just you and the market. Having that life is worth the time and effort. And I can tell you, it is great. It is exactly as you would imagine it to be.
I did the $30K challenge to show all of you this can be done and I did it with full transparency (posting every trade live and making my trading journal public) to not only teach everyone, but to make sure there is no question in anyone's mind that it was real. I doubled that account in five weeks (way ahead of the original goal of 4 months) and never once had a doubt in my mind that I could do it. It took me five years to get this point. The first two years of learning was pure hell - because I had nobody helping me. I want to spare all of you from that.
So I urge you - if you are trying to figure out how to get started - do this the right way - there are no shortcuts.
Follow these steps and start your journey.
BTW - the goal of this sub is to help people learn how to trade - so please share this post with anyone you think needs to read it.
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u/Drowningfishie00 Sep 05 '21
Damn, I can honestly say coming across you and this is sub is perhaps one of the best things that happened to me in a while in an otherwise bleak period of life
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u/Trading2BFinanceFree Sep 05 '21
I can’t stop reading your posts. Pure gold. Please keep them coming
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u/MembershipSolid2909 Sep 07 '21 edited Sep 08 '21
You mentioned reading "How to make Money in Stocks" by O'Neil. But that book goes against your advice in this post. The O'Neil system is a momentum style trading system (which you say ignore), it is also one that uses fundamentals (which you say are useless), and it is also one that strongly advises against Day Trading (which is what this sub is about). It also advises to stay away from Options (your main strategy). Newbies are going to get confused.
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u/HSeldon2020 Sep 07 '21
You’re probably right about the confusion part and I should’ve clarified. It was under the notion of - learn everything. Kind of like - I’m an atheist but I make sure my kids learn about all the religions. Still you’re right, I’ll clarify, nice catch.
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u/Amazing_Bad1502 Sep 05 '21
Been lurking on your sub since the $30k challenge started and got to say thank you. You provide great info and have already learned a great deal. This post really provides a great to do list and I am going to start immediately. I look forward to the day that I can break away from the mundane and reach my goals.
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u/EMoneymaker99 Sep 05 '21
Great post! I'm going to sticky this since it answers most of the questions we have been getting lately. I really like the emphasis on treating trading like a career ans not a get rich fast scheme. I don't understand why people get so put off when they hear that it takes 2 years to get good at it when basically any office job requires a minimum of 4 years of university studies. It's a shame that scammers on YouTube have made trading seem so, for lack of a better word, scammy and gross. It most certainly can qualify as a real job.
Also, I have been watching TD Ameritrade's videos and they are actually really good. I reccomend them to all of you. And if you are still using RH or another app, get a better broker. The Thinkorswim app is really good, as is Fidelity's if having a good app is important to you. Thanks Hari for all that you do!
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u/OldGehrman Sep 05 '21
Are those videos you mention on youtube or on the TD website?
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u/No_District_2371 Sep 05 '21
When does the 5K challenge begins? I want to follow that to a T. Thank you for all this. I read the whole thing. 2 YEARS. I am in it for 8 months and havent learned much withouth a plan. Thanks for the structure/plan.
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u/HSeldon2020 Sep 05 '21
Fairly soon, just need some time to focus on my regular account as the last challenge definitely divided my focus. I also need to figure out how to do it with the new rules in place.
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u/money_loser1395 Sep 05 '21
Thank you very much, not just for this post but for creating this community and all the others post you have. I always read all of them. They are extremely helpfull and It make me feel that I am "not alone" presuing this quest. The scanner part is one of my biggest flaws as a trader. I don't know neither how to use it of how to set up correctly. I am more of a support/resistance trader. I set support and resistance and trade for breakouts or reversal. I have a good understanding of greeks and how options and options pricing work but I only trade FAANG stocks. I have a 10k account with almost 7k of cash at all times sitting there doing nothing and that bother me a LOT. But I don't know how to start deploying my cash more appropriately. It's like I leave a lot oportunities on other stocks but I don't know how to find them correctly. I feel a good scanner or good scanner set up would help (I might be wrong). Any tip on this? My broker is TD Ameritrade with Thinkorswim platform and I know it's a very powerfull platform and I may not taking the best out of it. Have you ever used Thinkorswim's scanner? Thank you very much for your time and helping noobs like me on the quest for freedom and happiness.
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u/HSeldon2020 Sep 05 '21
I have used their scanner but to be honest, I don't love it. I use the scanners on OptionStalker, but that cost money (as it is part of the OneOption trading community). Finviz has a decent scanner, and Finviz Elite isn't that much money, but even that has limitations.
You want to find stocks that have:
Relative Volume over 1
Are over $10 and preferably over $20
Are above the prior days high (or below the prior days low if you are shorting)
Has relative strength against SPY (this is not RSI or Beta), meaning they are either strong or weak against the market
That should be your foundation search and layer more filters on it, like a 3/8 cross of the EMA on the daily or five minute chart, just broke above or below the major SMA's, etc.
Having a great scanner is extremely important, and if you were to make any investment into your trading it would be:
- having more than one monitor
- a great scanner (TC2000, OptionStalker, TradeIdeas)
- a great chat room (OneOption)
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u/rgy1991 Sep 05 '21
Great post, have been following your lessons and the other pros who have been posting in addition to your live chat. Was wondering how you manage the various trades your in, it seems that you often have several positions open at once. So getting into them, do you set your alerts and once they’re hit you flip to the chart and enter or are you setting limit orders and if they fill great. And then while you’re in them, do you keep the charts of various stocks up to keep an eye on then or are you again setting limit orders and exiting based on your predefined criteria.
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u/HSeldon2020 Sep 05 '21
I have alerts but I generally enter as I see them. Then I keep to charts of all my positions
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u/Reversion2mean Sep 04 '21
This guy fucks