Trade The Journey

Trade The Journey

Beginners guide to Investment and Trade: Strategies & Tips for Success

Starting off on your investment or trading journey can be challenging especially if you’re just beginning. In the past, information was hard to come by but now the reverse is true, there’s almost too much information. Everywhere you turn, someone is offering a new trading system or instructional course that guarantees trading and investment success. Unfortunately, investing and trading can’t be mastered in a day, weeks, or even a couple of years.

The first lesson you should understand is that learning how to trade and invest successfully takes time. You’re competing against the best and brightest in the world each time the market opens.

About six years ago I began my journey, reading everything I could get my hands on, but it wasn’t until I started investing and trading with real money that I learned what worked and what didn’t.

This doesn’t mean that reading, watching instructional videos, paper trading, or attending seminars isn’t helpful. The learning curve I faced as a beginner was mostly likely shortened due to everything I did above. However, with money on the line, your emotions come into play, and emotions are often overlooked as part of your trading and investing success.

This guide will give you everything needed to get started, shortening your learning curve and preparing you for the arduous journey ahead.

The second lesson is that investing and trading are two different things. Investing requires using a long-term perspective on the economy, market, industry, and company outlook. Trading requires using a short-term perspective on market events, company news events, and the technical outlook for the company you’re trading.


This approach is the one I follow which is known as a top-down strategy, starting by analyzing the broader economic environment and then drilling down to the specific industry, company, and then earnings. For trading, I still follow the same process but instead of planning and forecasting for years, I develop a forecast based on the short-term outlook.

The economic outlook is the most challenging forecast to develop because there are so many unknowns in the future. I’m sure that only a few saw the Russia/Ukraine conflict developing into a full-scale war and fewer saw a Pandemic transforming the way that we lived. So when developing an economic forecast you must be flexible and able to adjust as different events occur.

So what do you look for when scanning the economy and developing a forecast? The first thing I look at is the cost of money, also known as interest rates. The government, businesses, cities, states, companies, countries, you, and I all borrow money in some form to either cover short-term or long-term expenses. Companies use debt to finance new projects or obtain new equipment or maybe even buy back shares.

The Federal Reserve has two main mandates which are to maintain price stability and maximum employment hence they are raising the rates to bring prices back in balance. The cost of debt can also be assessed by looking at the treasury rates which serve as the risk-free rate on which corporate bond rates are based on.

I then look at the initial claims report which tallies the number of people applying for unemployment insurance to get a quick idea of the employment picture. Consumer confidence and spending are central to the GDP of the United States. Most of the companies you review depend on the consumer to spend money whether it’s for things they need or want.

The next thing I look at is housing because it has a multiplier effect, meaning that housing has an effect on many different industries. Someone needs to build the house, sale the house, finance the house, furnish the house, and keep the house in good condition. If rates are high, selling the house may not be easy and builders may not want to invest in constructing the house if they may have problems selling the house.

I won’t go through all of the economic reports I review weekly but the reports released monthly and weekly involving the topics above will give you a good sense of where the economy is headed. It’s important to remember that you’re not trying to predict perfectly, instead, you’re trying to get a good sense of where the economy is headed.

Once you have a general sense of where the economy is headed, you should have an idea of where we are in the business cycle. The economy contracts and expands and is in a constant state of motion. It can be difficult to assess the level of contraction or expansion in the future, so I will try to assess the general state of the economy, are we headed towards a contractionary or expansion period?

All this analysis leads to industry selection, as some industries do well in different periods of the business cycle. Would you invest in the housing industry if we are heading towards a contractionary period?

That depends on whether I’m investing, looking to purchase the stock of the company in the housing sector when it’s undervalued, or trading, looking to capitalize on the downturn by going short. Going short means, you sell the stock at a higher price and hope to buy it back at a lower price. Going long means buying the stock at a lower price and selling it at a higher price.

I try to stick to industries that I am at least familiar with or have worked in like retail, construction, and commodities. By doing this, I have an insider’s perspective on how the industry works and I know from working in the industries when things are going well and when they aren’t. Peter Lynch, a great investor, would sit in the mall and watch the foot traffic to see what consumers were actually doing. This allowed him to spot a trend or a change in the trend before it was reported on the earnings report.

Once you have selected the industry, there are plenty of economic reports that give you an overview of the state of the industry. For example, back to housing, what kind of economic reports should you keep an eye on?

Rates: What is the present cost of money? Are consumers paying more or less to finance a house? How much are companies paying to fund the construction project?

Employment: Are construction companies having a challenging time finding skilled labor? Are consumers confident in their long-term employment? Can consumers find a job with ease?

Commodities: What is the price of crude oil? Copper? Lumber? Are companies incurring more costs when purchasing materials?

Competition: How is the competition faring? Are they thriving in the current environment or struggling alongside their competitors?

This is how I break down the industry to see what’s could be affecting the company’s bottom line. Once I develop the outlook for the industry, I can then begin searching for companies within the industry that I’d like to invest in.

I typically look for companies with a sound balance sheet, great management and good cash flow. All of these factors point to the companies’ potential earnings. Sometimes a company’s balance sheet and cash flow may not match the company’s potential for many reasons. The company could be restructuring or in the midst of growing, so you must study the company to assess where they are and where they could be a couple of years from now.

Assessing a company involves many factors and since this is a beginner’s guide I won’t go too far into detail. Maybe an example might be better. A couple of years ago, I invested in a company called Celsius that was selling for $10 per share. I purchased their energy drinks on a consistent basis and their energy drinks featured a weight loss or metabolism-increasing effect. They also had sound management and when I looked at their balance sheet, they weren’t overleveraged, meaning they didn’t have more debt than they could afford to cover.

Their investors’ list featured Jessica Alba and Li-ka shing. Li-ka shing is a billionaire and prominent real estate investor. He has an excellent documentary that can be found on YouTube. When I saw his name on the investors’ list, I knew the company had something worth looking into. Fast forward a year or two, and the companies per share price had risen to over $50. A year later it topped $100 but I was already out of the position by then.

This is the perfect segway to trading, which I love to participate in. A trader looks at all of the factors above to find the general trend of the markets in the short term. A trader unlike the investor is in the market for the short term whether that be minutes, days, or weeks. If a trader is in a position for a week or longer, that trader would be known as a swing trader.  A trader would have maybe caught the move in Celsius from $30 to $40 once the short-term trend had definitively turned upwards. Experienced traders might be able to catch the trend before it turns upwards.

A trader must develop a written plan on how they will trade the market. Some traders trade the market based on technical patterns, others trade based on momentum and experienced or talented traders trade the market based on market feel. I wouldn’t recommend the latter because it takes years of trading the market to develop a feel for the market and trade based on instinct.

Next comes the entries and exits a trader must determine. Where will you enter the trade? And how will you exit the trade?

I set reference levels on my chart to determine entries and exits which is based on the technical patterns I see on the chart. There’s no one way to trade the market.

The most important aspect of trading is developing a stomach for losing trades and having the ability to move past them. I can’t tell you how many times I remained in a losing trade because I thought the trade would reverse from a losing trade into a winning trade.

One aspect of trading you must understand is that you will have losing trades. You won’t be profitable 100% of the time and maybe not even 50% of the time. However, if you can limit the amount of money you lose on trades that don’t work, you’ll be able to remain in the trading game and possibly find another trade that is profitable.

There are a lot of details involved in trading and investing that I may have glossed over but that’s where you as a trader or investor must invest the time to discover. My reading list features books you can use to build your knowledge base. Everyone’s journey is different but the most important thing to know is that a trader and investors must know who they are.

What are your weaknesses? Your strengths? The market is an expensive way for you to find out who you are. A lot of the time, you aren’t trading the market, you’re trading who you are.

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