Less than 10% of traders are profitable long-term, and even a smaller percentage can beat the market over time. What this means to the average retail trader, is if you keep trading enough you will go broke.
When I started out, I had an awful time, losing a lot then breaking even, then losing a lot. Rinse and repeat. I never fully went broke, just mostly swung my account to a 50% loss rather than getting my account back to break even.
After every failure I worked harder, studying charts, reading literature, and finding patterns. Eventually, all the things I was doing right clicked and I became profitable. I currently stand at a 95%+ win rate since 2016, as well as beating the market over the last decade. It would have been great to have a step-by-step guide on how to make money trading stocks.
In this article, I lay out everything I did right to become a winning trader, removing all the noise. I believe following this list, at the very least will help you lose a lot less money. However, if you want to become truly become a winning trader follow this list religiously, and put in the work.
How To Make Money Trading
1 - Read Trading For Dummies - This is where I started, no shame in reading this book, it gives you all the basics you need from chart reading and indicators as well as what is needed to be a professional trader. This book will give you a solid foundation and will provide knowledge on a broad set of topics when it comes to trading and investing.
2 - - Master Bollinger Bands - Bollinger Bands are by far the most reliable indicator because they can calculate the upper and lower limit of price action via math. Stocks can't escape the math (it eventually catches up). You need to understand how Bollinger Bands are used to detect if a stock is overbought/oversold because it will save you from holding too long and using silly stop losses when not needed. I wrote a guide which is a great starting point for learning Bollinger Bands.
3 - Master Japanese Candlesticks - You should view all your stock charts via Japanese Candlesticks. Remember the phrase "a picture paints a thousand words"? Well, that's what Japanese Candlesticks do, they give you a wealth of information just with one Candlestick, and when you piece the days together, you start getting the whole picture. These are a must, as once you get good enough, you can predict future price action much better. Unlike traditional indicators which lag, using Japanese Candlesticks you can predict the future with much higher accuracy. I wrote a guide on Japanese Candlesticks for those not well-versed in them.
4 - Use Backtesting Software - This is where all the money is, you need to develop a trading system. Let's say you trade 5 and 10 EMA cross-overs, where every time the 5 EMA goes over the 10 EMA you buy, and when the 5 goes below the 10 EMA you sell. You have two choices to execute this system, you can actually do it with real money and learn the hard way that it loses. Or you can put this trading system into backtesting software which will easily tell you this system lags the Market.
That is the power of backtesting software, it is everything. Backtesting software is how you will build your trading system, instead of losing money learning the hard way. Check out this article I wrote on using back-testing software to create a winning trading system.
5 - Use A Cluster Of Signals When Buying & Selling - Whether you are buying or selling, I recommend using a cluster of signals, i.e. two to three indicators that say you should buy or you should sell. For example having a Japanese candlestick hammer form at the bottom of a Bollinger Band, which is two signals for buying a stock (these two signals mean it's likely there is a bottom). Relying on a cluster of signals has the added benefit of restricting you from over-trading, as multiple signals confirming a trend happen much less often than you think, but in turn, are much more accurate. You will lose less often.
5 - Use A Cluster Of Signals When Buying & Selling - Whether you are buying or selling, I recommend using a cluster of signals, i.e. two to three indicators that say you should buy or you should sell. For example having a Japanese candlestick hammer form at the bottom of a Bollinger Band, which is two signals for buying a stock (these two signals mean it's likely there is a bottom). Relying on a cluster of signals has the added benefit of restricting you from over-trading, as multiple signals confirming a trend happen much less often than you think, but in turn, are much more accurate. You will lose less often.
6 - Don't Trade Options - Simply, do not, I repeat, do not trade options. I cannot emphasize enough, how bad this is. In this article, I go into much more detail on why options are just a scam and the worst thing a new trader can get into.
7 - Do Not Short Stocks - The stock market is designed to continually go up; you do not want to short stocks where you can lose an infinite amount of money (imagine shorting Gamestop and AMC). Don't even have this in your "trading toolset", it's not really profitable long term. We don't live in a truly free stock market. Governments hate it when the Stock Market goes down!
8) -Automate Your Watch List - Automating at least a portion of your trading is a must, you cannot go every single day looking at every chart and finding good setups. Find a great scanner software, and write scripts on patterns of stocks you like, and from that list, weed out the bad setups. This will save you so much time. I currently use the StockCharts.com scanner to curate my watch list.
9 - Don't Have Full-Time Aspirations - Do not have your goal to trade full-time, it's a boring and unhealthy career, with a ton of stress. Do not go into the stock market thinking you need to become a full-time trader, it adds unnecessary stress and will cause you to trade poorly. If it happens it happens, just consider trading a "very serious side hobby".
10 - Have A Stock Trading Ban List - Do not trade foreign companies, and companies you don't fully understand. Foreign companies tend to cook their accounting and will make trading their stock unpredictable as one day their stock will crash to 0 (i.e. Chinese stocks).
Also, make sure to trade stocks so that you understand what the company does. Don't trade some random "holdings" company. When things go bad with a stock, your instinct will be to sell, but if you understand the company it is less likely you will reflex sell, as your conviction will be stronger.
Conclusion
In the guide above, I listed as much wisdom as I could fit into this article, in the hopes of improving your trading. Hopefully, I have given you new ideas on where to start and where you should improve so you can achieve your trading goals! Make sure to follow the links to other articles to expand on topics I've briefly mentioned here.