I am not a financial advisor or professional, the information I’m sharing is not investment advice, only documentation of information that I’ve learned in my journey to increased financial independence.

20 Tips to Read Before Playing in Stocks

I’ve been studying and trading stocks for the last 3 years, primarily focused on technical analysis. A mere blink of the eye in terms of career development — needless to say, I’m not a professional. However, I’m at just the right point in time to offer insights that I wish I had when I started this endeavor.

After months of ardent consumption of literature on trading I decided to give it a try. I developed a simple trading strategy and started with paper trading (using virtual money). For the next six months I dove into Thinkorswim by TD Ameritrade making anywhere from 10 to 20 trades per day, slowly transitioning to real money.

At the height of this learning journey I took a 2 month sabbatical from my successful career in tech to double down on my day trading experiment. It’s hard. I more or less broke even after my sabbatical. I got enough of a taste of trading to realize it would take me much longer to become proficient than I hoped.

Near the end of my sabbatical Thinkorswim had some outages and so I moved to Webull (I have no affiliation with the app). I continued to day trade in Webull for some time focusing on the pre-market — the time before the stock market officially opens. I soon realized it simply wasn’t practical to be a successful day trader while trying to maintain a full time career in the Eastern Time Zone. To add, Webull isn’t streamlined for the rapid execution and performance needed for day trading.

So, I updated my strategy to focus on swing trading (in short, that means holding trades longer to capture longer trends in an asset). This transition also happened to coincide with the tail end of the COVID crash recovery:

I transitioned to swing trading at the tail end of the market’s recovery from the COVID crash.

It’s important to note that in my day trading account, I actually didn’t do very well during this aggressive period of bull momentum that started in March of 2020. If I would have just picked nearly any mature stock on the market and invested my money instead of trying to catch daily swings, I likely would have made more. I lost sight of the forest for the trees, or whatever the saying is.

After switching to a swing trading-based strategy, I found much more stable success as well as a strategy that was compatible with my life. While in recent times it has been an absolute rip of a bull market making gains easier, I did have the pleasure of having gone through the COVID crash too and the relevant struggle of trying to trade during that period.

Now, after having found a stable strategy that works for my lifestyle and risk profile, I’ve begun to feel more confident in my education and instincts. Here’s a snapshot of the performance of the portfolio I’ve been “practicing” with over the last year:

The author’s 1 year profit and loss including a long span of unsuccessful day trading followed by an evolution to a more mature, successful strategy.

The flat and downward portions of my P&L (“profit and loss”) are from the periods where I was aggressively day trading — not to mention also during periods of rapid bull growth of the larger market. I’m not a great day trader.

As soon as I altered my strategy (more emphasis on due diligence, basic technical analysis, holding longer), my P&L began to more closely follow the larger market’s growth. Over the last 6 months of swing trading my portfolio beat the performance of the S&P 500 by a few percentage points indicating a degree of resiliency based on my new strategy:

This is modest growth compared to many of the trading gurus you’ll see online and time will tell how resilient it truly is. I’m proud of it nonetheless, and I wouldn’t have traded this educational experience for anything. Could I have made more money with a different strategy, namely buying and holding? Or could I think more deeply about my personal incompatibility with day trading? Probably. Though, I learned so much over the last couple of years and the cost of that education has given me a basis from which I feel capable of growing wealth for the rest of my life.

Now the Tips

Some of these echo common guidance, but they bear repeating because I heard them and oftentimes didn’t have the will power to adhere to them. Here we go:

1. Investing vs Trading. I’m primarily referring to trading in this article. Investing is holding a position for long periods of time, like in a retirement account. Trading is holding a position for seconds, minutes, days, or anything less than a year.
2. Access Does Not Mean Easy. Don’t confuse the easy access to modern financial tools with the notion that trading is easy. Trading is a profession and like any other career it takes many hours to become proficient. It’s easy to put your money in. It’s also very, very easy to lose it.
3. Feeling Greedy? Get Out. If you get out of a trade with any profit at all, that’s a BIG win. Implant that into your brain. If the stock continues to climb after you exit, it’s irrelevant. There will be more opportunities. Over time you’ll learn when to “let winners run” or when to get back in.
4. Ignore Comment Threads. Don’t make decisions based on comment feeds in apps like Webull, Robinhood, and Stocktwits. Verify the mentors you follow on social media and verify data from multiple sources.
5. Amateur Trading Social Media is Toxic. There’s a prevalent “bears vs bulls” sentiment in the entire trading community and an insipid notion of “the game is rigged” when trades don’t go someone’s way (it’s likely there’s market manipulation, but most people just make bad decisions). You can ignore 95% of this stuff.
6. Recognize a Strong Market vs Strong Skills. When the market is roaring your trades might just be following the larger momentum. Measure your performance over the course of multiple, long market cycles.
7. Know Your Risk. Only risk what you can lose. Diversifying really does work, but it’s slower to accumulate (and to lose) wealth.
8. Don’t Buy High. Just don’t do it. That’s called chasing and it almost never works. At least wait for a dip or consolidation as an entry point. There are strategies that buy at ATH (all time highs) to benefit from momentum, but you shouldn’t start there.
9. 3 Key Patterns to Master. One of the most fundamental skills to have is understanding support, resistance, and consolidation. Look it up and reread the definitions multiple times. Investopedia is a great resource.
10. Prioritize Capital Preservation. Use a stop loss — especially when you’re just starting out. You might think you have the mental strength to exit a trade manually when it’s going against you… you probably don’t. At the very least, use a stop loss to preserve your original capital.
11. Ignore the Guru Gluttony. There are a ton of trading gurus out there looking for clicks/views. Consider this content entertainment. If you seek to learn from them, use a broad selection to get a balance. Would you spend hours every week posting content to a monetized YouTube channel if you could make millions trading?
12. Warren Buffet is Smarter Than You. If you don’t have the time to commit to extensive education, training, and experimentation, Warren is your guy. If you’re looking for quick wins or rapid gains, you will have to take big risks (and likely big losses) and you will tend towards luck and hope vs tried and true methods.
13. Panic Equals Opportunity. Speaking of Buffet… he says the best time to buy is when there’s “blood on the streets.” In other words, watch for moments of unreasonable panic as entry points to stocks. News fades, but stable, good companies last decades. Fear and panic should put you on alert like a dog hearing its food bowl rustle.
14. Analyst Ratings Are Questionable. After years of looking at analyst ratings, I still don’t rely on them. Stocks often far exceed the top-end rating, or might plummet below the lowest price target. Some stocks shoot up when they’re upgraded, others don’t. It’s one of the last things I check.
15. Regret Clouds Judgement. You missed Tesla? You regret not holding on to Netflix another couple of years? Forget about it. There are thousands of stocks to choose from, many of them will have impressive growth. Do the hard work to research other opportunities.
16. Paper Trading Isn’t the Same. Paper trading will never feel the same as trading with your own money. Paper trading is a really good way to become proficient at a tool, but pretty bad at mimicking the emotions involved in watching your own dough go up or down.
17. Most of Us Will Lose. The majority of folks would be better off putting their money in an ETF or mutual fund and not looking at it again for 10–20 years. By the way, if you have to play in penny stocks, don’t put more than 1% of your portfolio in them, if at all! And when you see a ticker that’s up 80%+ in one day, it’s playing with fire to get into that trade.
18. Remember Taxes. Think of trading in the exact same way you’d think of a side job — it will be taxed at the end of the year in the same way. It’s a good idea to set aside some money to account for this to avoid any surprises.
19. Trade What You Know. I focus on tech companies and well known brands because 1) I work in tech and 2) I can relate things like energy or consumer retail to macroeconomic trends. As an example, I considered buying 1 bitcoin at $16,000 but didn’t and then watched it climb to nearly $40,000. I’m okay with that. I don’t know how to reason about crypto so I stay out.
20. Finally (and I want you to say this out loud), you cannot predict the stock market. A Boeing jet just crashed? $BA barely flinched even though everyone thought it’d plummet. Activision posted record sales? $ATVI dropped. GameStop had absolutely no news? At the time of this writing $GME has climbed some hundreds of percent over a few days with no apparent catalyst (the start of a short squeeze induced by a Reddit frenzy).

At its worst, trading is gambling. You can put your hard earned money somewhere hoping on pure chance that you timed it right and it will go up. At its best, however, trading is a profession that relies on the careful study of human psychology, long established patterns of price movement, financial intelligence/business acumen, and the understanding of economic trends to increase your wealth.

What’s your relationship with trading? Where are you on your learning journey? Ask yourself honestly if you’re properly educated to risk a venture into the land of self-directed trading or investing.

And, as always, talk to your financial advisor, investing professional, and accountant before making any investing decisions.

Further reading:

• How to Day Trade for a Living by Andrew Aziz, Ph.D. — this was the first book I read on the topic and what jump started my learning journey. It’s short and to the point with plenty of examples. Andrew is also honest about the profession with his number 1 rule being that day trading is not a way to get rich quick.
• Trading Price Action Trends by Al Brooks — a dense, monolithic read that covers almost every subject you might care to cover. The reading is slow going as I find myself rereading the patterns and closely studying the chart references frequently. You might not remember it all, but you’ll pick up a few gold nuggets of wisdom that stick with you.
• Trading: Technical Analysis Masterclass by Rolf Schlotmann and Moritz Czubatinski — I wouldn’t say that it was a masterclass on technical analysis, but the authors do cover many concepts and patterns. The text is big and the charts are hard to read, though it’s a good, thorough review that will leave you with a better overall understanding of the complexity of the craft.