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This week, I’m back with another post from your friendly neighborhood billionaire Ray Dalio. Ray Dalio recently put out an article called “The Big Cycles Over the Last 500 Years”.

He talks about the rise and falls of empires and countries over the past five centuries. This is super important, because we are nearing a tipping point where the U.S. has been the dominant nation for the past 75 years.

No one really knows what life would be like if the U.S. weren’t the dominant superpower. However throughout history, there were other dominant superpowers.

The dominant superpower has not just been the U.S.. Amongst many others, the Romans, Egyptians, Dutch, British and Chinese were also superpowers. The U.S. is at a tipping point, and China is challenging the U.S.

Before we dive into a 1600s history lesson, there are some things you need to know.

It’s important to note is that these cycles of rising and falling empires happen over and over again. You will even see this on a granular level, in your life stages. For example going through school, college, marriage, kids and retirement.

Empires usually last between 50 years and a couple hundred of years. Then another superpower rises up to challenge them. Then there is a new superpower.

The U.S. has been the superpower for the past 75 years. Although I think the U.S. will stay the superpower for longer, China is growing stronger. Ray specifically talks about how there is eight measures of a country’s superpower.

How educated are the people collectively of that country to innovate new technology?

How is that superpower country innovating and leading the push into new tech?

How competitive are we compared to other countries in terms of the military?

We also are very strong with global imports, exports, trade with other countries

What’s our GDP as a country overall compared to the total GDP of the world?

Right now New York is the main financial center. However China is growing stronger in the finance.

The U.S. is currently the reserve status . However, as I’ve stated before, China is growing stronger in all eight areas. Now China is essentially very strong in all of these areas as well.

This is one of the first times in the past few decades where a country is rising up and competing with the U.S.. China has some of the top schools. These schools are producing very smart engineers! In China, they are innovating AI and machine learning software.

Shenzen, China is basically the next Silicon Valley, military center and trade center. It affected our stock market when we got into a trade war with China.

Now we rely on China for many goods and services. If we got into a serious trading war, we wouldn’t necessarily need to make up for the lack of manufacturing.  Let’s dive into specific examples.

Around 1580, the Dutch overtook the Spanish empire who had been in control for 200 years prior. In the years leading up to 1580, the Spanish empire was the strongest empire in the Western world, and the Chinese empire was the strongest in the Eastern world.

Meanwhile the Dutch were becoming more and more educated. In fact, they came up with 25% of the inventions worldwide with just a population of around, 1 to 2 million people. They created strong ships that allowed them to control trade – and trade is a measure of superpower.

Not only that, they created a lot of the capitalist functions that we have today. Specifically, they created the first public company – the Dutch East India company.

They also created the first stock exchange in 1602. They created this new system to take on more debt and give more capital to companies. This allowed them to grow.

Additionally they created the world’s first reserve currency. Many people around the world were involved with Dutch trading so the currency became widely used.

The Dutch were very good at building ships, which allowed them to control trade and establish naval dominance.  Furthermore, Amsterdam became a leading financial center!

All good things come to an end. Empires rise and fall! The British rose up to challenge the Dutch. As the British got stronger, both economically and militarily, they started to challenge and fight with the Dutch. After many decades of fighting, the British won around 1815.

THE RISE AND DECLINE OF THE BRITISH EMPIRE AND POUND

As is typical after wars, the winning powers (most notably Britain, Russia, Austria, and Prussia) met to agree on the new world order.

That set the stage for Great Britain’s 100-year-long “imperial century” during which Great Britain became the unrivaled world power. The British pound became the world’s dominant currency, and the world flourished.

As is typical following the period of war, there was an extended period—in this case 100 years—of peace and prosperity, because no country wanted to challenge the dominant world power and overturn the world order that was working so well.

Like the Dutch before them, the British followed a capitalist system to incentivize and finance people to work collectively, and they combined these commercial operations with military strength to exploit global opportunities in order to become extremely wealthy and powerful.

Around 1760, the British created a whole new way of making things and became rich while raising people’s living standards.  It was called the Industrial Revolution.  It was through machine production, particularly propelled by the steam engine.  So, this relatively small country of well-educated people became the world’s most powerful country by combining inventiveness, capitalism, great ships and other technologies that allowed them to go global. This also included a great military that created the British empire which was dominant for the next 100 years.

Naturally London replaced Amsterdam as the world’s capital markets center and continued to innovate financial products.

Later in that 100-year peaceful and prosperous period from 1870 to the early 1900s, the inventive and prosperous boom continued as the Second Industrial Revolution

This period was for Great Britain what “the Dutch Golden Age” was for the Dutch about 200 years earlier, because it raised the power in all the eight key ways.

At this time several other countries used this period of relative peace and prosperity to get richer and stronger by colonizing enormous swaths of the world.  As is typical during this phase, other countries copied Britain’s technologies and techniques and flourished themselves, producing prosperity and, with it, great wealth gaps.

That period was called “the Gilded Age” in the US, “la Belle Époque” in France, and “the Victorian Era” in England.  As is typical at such times the leading power, Great Britain, became more indulgent while its relative power declined, and it started to borrow excessively.

As other countries became more competitive, the British empire became more costly and less profitable to maintain.

From 1900 until 1914, as a consequence of the large wealth gaps, there became 1) greater arguments about how wealth should be divided within countries and 2) greater conflicts and incompatibilities in economic and military powers that existed between European countries.  As is typical at such times, the international conflicts led to alliances being formed and eventually led to war.

That war had become global (WWI). It lasted from 1914 until 1918 and cost the lives of an estimated 8.5 million soldiers and 13 million civilians.  As it ended, the Spanish flu arrived, killing an estimated 20-50 million people over two years.  So 1914-20 was a terrible time.

Despite winning both World War I and World War II, the British were left with large debts, a huge empire that was more costly than profitable, numerous rivals that were more competitive, and a population that had big wealth gaps which led to big political gaps.

Although the US had overtaken the UK militarily, economically, politically, and financially long before the end of World War II, it took more than 20 years after the war for the British pound to fully lose its status as an international reserve currency.

THE RISE OF THE AMERICAN EMPIRE AND THE US DOLLAR AFTER WORLD WAR I

As is typical after wars, the winning powers—in this case the US, Britain, France, Japan, and Italy—met to set out the new world order.

The large foreign debt burdens placed on Germany set the stage for 1) Germany’s post-war inflationary depression from 1920 to 1923 that wiped out the debts and was followed by Germany’s strong economic and military recovery, and 2) a decade of peace and prosperity elsewhere, which became the “Roaring ’20s.”

During that time the United States also followed a classic capitalist approach to resource allocation, and New York became a rival financial center to London, channeling debt and investments into various businesses.

Other countries became more competitive and prosperous and increasingly challenged the leading powers.  Most importantly Germany, Japan, and the US got stronger economically and militarily.

However, the US was isolationist and didn’t have a big colonial empire past its borders, so it was essentially out of the emerging conflict.  As shown in the chart of the standing of empires above, Germany and Japan both gained in power relative to the UK during this interwar period

As is typical, the debts and the wealth gaps that were built up in the 1920s led to the debt bubbles that burst in 1929, which led to depressions, which led to the printing of money, which led to devaluations of currencies and greater internal and external conflicts over wealth and power in the 1930s.

The Japanese and Germans started to make territorial expansions in the early to mid-1930s, which led to wars in Europe and Asia in the late 1930s that ended in 1945.

That brought about the second world war which, as usual, was won by the winning countries coming up with new technologies (the nuclear bomb, while the most important, was just one of the newly invented weapons).  Over 20 million died directly in the military conflicts, and the total death count was still higher.  So 1930-45, which was a period of depression and war, was a terrible time.

THE RISE OF THE AMERICAN EMPIRE AND THE US DOLLAR AFTER WORLD WAR II

As is typical after wars, the winning powers—most importantly the US, Britain, and Russia—met to set out the new world order.

The US followed a capitalist system.  The new monetary system of the US-led countries had the dollar linked to gold and had most other countries’ currencies tied to the dollar.  This system was followed by over 40 countries.

At the same time, the currencies and debts of the losing countries were wiped out, with those holding them losing all of their wealth in them.  Great Britain was left heavily indebted from its war borrowings and faced the gradual end of the colonial era which would lead to the unraveling of its empire that was becoming uneconomic to have.

New York flourished as the world’s pre-eminent financial center, and a new big debt and capital markets cycle began.  That produced what has thus far been a relatively peaceful and prosperous 75-year period which has brought us to today.

As is typical of this peaceful and prosperous part of the cycle, in the 1950-70 period, there was productive debt growth and equity market development that were essential for financing innovation and development early on.  That eventually led to too much debt being required to finance both war and domestic needs—what was called “guns and butter.”

Then in 1971, when it was apparent that the US didn’t have enough gold in the bank to meet the claims on gold that it had put out, the US defaulted on its promise to deliver gold for paper dollars which ended the Type 2 gold-backed monetary system, and the world moved to a fiat monetary system.

Each of these cycles raised debt and non-debt obligations (e.g., for pensions and healthcare) to progressively higher levels, and this led the reserve currency central banks of the post-war allies to push interest rates to unprecedented low levels. This led to printing unprecedented amounts of money.  Also classically, the wealth, values, and political gaps widened within countries, which increases internal conflicts during economic downturns.  That is where we now are.

During this prosperous post-war period many countries became more competitive with the leading powers economically and militarily.

In China, Mao Zedong’s death in 1976 led Deng Xiaoping to a shift in economic policies to include capitalist elements including private ownership of large businesses, the development of debt and equities markets, great technological and commercial innovations, and even the flourishing of billionaire capitalists—all, however, under the strict control of the Communist Party. As a result of this shift and the simultaneous shift in the world to greater amounts of globalism China grew much stronger in most ways.

And it is growing in power at a significantly faster pace than the United States and other “developed countries.” At the same time, we are in a period of great inventiveness due to advanced information/data management and artificial intelligence supplementing human intelligence with the Americans and Chinese leading the way.

Thanks for reading guys! Please check out our other posts below!

Ray Dalio - U.S. Monetary System in 2030?

We first need to understand human behavior and psychology. This is what drives the markets. Humans are very emotionally driven. We have big egos. As a result we think we are always correct. Human behavior is amplified when you throw the stock markets into it. This explains why many new traders blow up their account even though they know they should have a stop loss and risk management in place. They are in denial and continue to move their stop loss. They enter a trade with no risk management in the first place. The only reason to do this is if they think there is no way they could be wrong.

Humans tend to jump the gun before fully rationalizing and weighing the pros and cons of a scenario. This is a product of being emotionally driven. This is why many amateurs, over the past month, try and “predict the bottom” or catch a falling knife. They did this even though there were no signs of any rebound yet.

Many amateur traders tried to short the markets as the markets were rebounding. They thought the markets would go lower, but the markets have actually been going up. I struggled with most when I first started trading. It is always important to have this on the top of the mind because there is so much volatility and fluctuation in the markets.

Another aspect of human psychology, that ties into the markets, is a lack of patience. I’m not talking about the patience to wait for your significant other to get ready… that is true patience! Instead of waiting for confirmation like we should, we jump the gun. As much as I want to short this market currently, I know I have to be patient. I have to wait for confirmation. I also have to explore the other side of opinions to reduce any personal bias. The practice of looking at both perspectives also improves my overall decision making.

Next is something called confirmation bias. As humans, the moment we believe something is true, we find ways to convince ourselves it’s true. When we believe the markets are going to go down, we read more news on why the markets are likely to go down. Oftentimes ignoring any articles that talk about why it would go up.

In addition, humans are generally just bad decision makers. People were not prepared for Covid-19. I knew a few people who took initiative and did research when the news came out. They prepared for quarantine by buying food, gym equipment, cleaning supplies and more. Once coronavirus was mainstream knowledge, the gym equipment was all sold out or selling at outrageous prices. Now things are taking 4 weeks to deliver! However, the one thing I didn’t understand was the whole toilet paper shortage… Why were people aggressively buying toilet paper? Maybe people were cooking more at home, as a result eating healthier, and needing to use the bathroom more? Who knows.

Think back to a time when you were on the way to a meeting with someone. We naturally default to telling people a time to meet, and then show up 30-min late. We think a project will only take a week to complete but it ends up taking a month. This is the planning fallacy. This means that people tend to be over optimistic and overrate their own abilities. That is why you see so many amateurs jumping into the markets with no experience or background at all, and they throw $10,000 in one stock.

The final core component of understanding stock market psychology is taking the longer term point of view. As humans, we’re very bad at planning things in advance. Most people don’t even know what they’re going to eat! I’ve seen so many couples spend hours arguing over a place to eat! It’s absurd, but everyone does it. If we are naturally bad at planning then we are naturally struggling to think long-term. This applies to the stock market! Potentially the markets are going up currently because people haven’t priced in the effects of coronavirus? If history is any indicator of the future, humans are slow to see these things.

Humans are the ones that drive the prices in the stock market. Price is a constant tug of war between people who are bullish and bearish. If you’re able to understand all of the human psychological factors at play, and then overcome them, you increase the chance of your success in the markets.

In summary the core psychological areas that affect humans when it comes to the market are controlling the ego, being less emotionally driven, being more patient, looking at both sides of the argument and looking ahead.

If you can apply this knowledge, you will have a much better understanding of the markets, and you will probably perform better.

Right now – with the markets holding up, I have a feeling that it’s not going to drop until we least expect it. People expect it to drop, and the real fear has not set in yet. It could stay at the current level past earnings season. March happened so quickly – this explains why people have not priced in fear.

As always, if you enjoyed this post then please check out more blogs like this below! Stay tuned for more articles coming up. Stay safe everyone!

This is Tim Luong with Stock Navigators reaching out with the five best stocks to buy in April 2020!  I’m currently thinking about what industries have been affected the most by the complications of coronavirus. I believe that this is the beginning of the next recession. I’m looking to average in stocks over the next 6 to 18 months. Rather than trying to predict the bottom, I’m going to be looking to average in. “Average in” means that basically just means putting in a set amount each time, consistently over the next 6 to 18 months so that my average price will be very reasonable. What markets have been most affected?  It’s airlines, it’s cruises and hotels. People can’t travel or go on cruises or travel because of coronavirus, and the markets demonstrate this. 

Delta airlines (DAL) is currently trading at $28.50. A few months ago, they were trading at $63. That is around a 60% discount on what it was at before. I believe it should go down lower. As it goes lower, I’m going to be looking to buy more and more of Delta and other airlines as well. I’m not looking to just jump into Delta only and not into other airlines. I want to diversify my risk. The potential gain for most of these airlines is pretty similar. I mitigate my risk of one of these airlines going under, but I can keep my gains consistent for the most part and increase my probability.

United (UAL) is at $31.55 today. A year ago it was $97. Just even just a few months ago, it was at $94.00. That is a 65% to 70% discount on United- absolutely insane. I personally think United will go down even lower than $31.55. The lowest it has been was a week ago when it was around $17.

I’m going to average into these positions as they continue to go lower because airlines will continue to drop but they will rise back up long term. How else will we travel? Are people never going to fly in a plane again? Are we going to walk across the continents? That’s not possible. Airlines are sticking around long-term. This is a great opportunity to get into airline stocks over the next 12- 18 months averaging in. There’s a pretty high probability 10 years from now it should be as high as it has gone or higher. And again, I am only discussing Delta and United. There’s definitely more that you can research.

The next industry I want to talk about is cruises. The cruise industry is not doing well. World Caribbean is a very strong company, but their stock has been hit tremendously because of coronavirus. Royal Caribbean is currently trading at $32.00 and they were around $135 a few months ago. That is around a 75% discount. That is a huge discount. However I believe that the markets will go lower – my plan is to average in. The cruise industry is a great industry for long-term investments as well.

Hotels have also been hit very hard. For example Hilton. Buying stocks from the Hilton, or other hotels, in the next 6 to 18 months could be an amazing long-term investment. Hilton is trading at $68 and its high was $115. This is a 50% discount on Hilton. The lowest it got to was $45 about a week ago. It’s gone up in the past weeks, but I recommend looking very closely at this stock in the next few months. 

Another industry that has been hit hard is oil. The strongest oil stocks are ExxonMobil and United States Oil Company. ExxonMobil reached a high of $105. Now it is at $38! This is a 65% discount. I’m looking to invest in things for the long term. For my long term portfolio, ExxonMobil and all oil is a very strong long term play. There will not be a foreseeable future without oil.

The last companies that I want to discuss are Facebook, Google, Apple, Netflix – tech companies like these. The market hasn’t priced in a good enough discount for them because they weren’t directly targeted by the complications of coronavirus. If the economy goes into a recession, that’s when these good companies will pull down as a whole. Facebook, that ticker symbol is currently $166. It’s peak a few months ago was around $225. That’s around a33% discount. Facebook’s low was actually at $138 a week or two ago. The impacts of these bigger companies has not yet been factored. Their revenues will be affected eventually due to the complications of coronavirus. In a recession there is a downward spiral. I recommend watching Facebook, Apple, Google and strong tech companies to add to a long term portfolio. 

It has never been a better time to get invested in the stock market. And for beginners this is the best time to start to learn and become interested in the stock market because there has never been this volatility. These are unprecedented times. Other companies like Barclays and JP Morgan are taking advantage of this. Barclays made 250 million in a day, and a division of JP Morgan made over $1 billion when volatility first shot up on February 24th! Airlines, cruises, hotels, oil and strong tech companies like Facebook, Apple, Google and more, are the five industries I recommend as the best stocks to buy in April 2020.  

Tim here! Today I’m going to talk about if the markets will have a ‘V’ shape recovery. In order for us to come to an accurate decision, we must understand both sides and both parties point of view.

The optimists are people who are bullish and believe the markets will continue to go up. They have an optimistic view on when the economy will start back up again, and when life will return to normal. I’m going to consider both points of view.

If you look below on the chart of SPY,  which is the S&P500 ETF,  you can see that the markets are currently pulling back on this retracement after a huge drop-off in March. On April 21st the markets maintained inside this wedge triangle. That’s an uptrend. Until it breaks below this area we’re not going to see a potential test of the lows. The next couple of weeks are going to be important because we will see if the market breaks past the wedge triangle or continues lower past the triangle. This is based off of technical analysis only.

It has the potential to come up to around 292 for the SPY. People who are bullish believe that we have already hit the bottom, and it will go higher and test back highs from February. Look at Amazon, it’s already broken the highs from April 2019. Facebook remains in a sideways trend. In order for us to get a balanced perspective, we need to take a look at more stocks! I don’t believe that all of these big name stocks have been hit by the consequences of coronavirus.

The analysis I used on the charts is technical analysis. I saw this crazy new technical analysis drawing… with a lot of “potential” to predict the market. It’s called the rhinoceros pattern. For anyone who uses reliable sources, they know that this does not exist. There’s no such thing as a rhinoceros pattern… There are tons of people right now talking about technical analysis – and not all are accurate sources. Look at the right types of analysis from credible people. If you are interested in learning more technical analysis, stay tuned for more of my blog posts. No rhino patterns or dinosaur patterns here – only solid points and advice backed by experience.

HOW WOULD A ‘V’ SHAPED RECOVERY HAPPEN?

Optimists believe that the curve will eventually flatten. This means the number of new cases every day must stabilize, and then decrease to zero. Some optimist also believe that in summer the virus will bring an end to the virus because of hot weather or restaurants taking temperature checks. Optimists hope that people will go back to work by summer, and with the help of practicing social discussing less people will be affected. Eventually we will develop herd immunity until there are no cases left. In order to have a ‘V’ shaped economy, people must go back to work and businesses must open.

Are we going to accept that people will continue to contract coronavirus until we develop immunity? One argument goes as follows. There are 38,000 deaths in the US each year from car accidents, and most people drive to and from work, with the risk of getting into a fatal car accident. This is a necessary risk because people need to go to work to support their livelihoods and subsequently the economy. Look at the image below to see just how scary these statistics are.

This same logic can be applied to coronavirus – we live our lives everyday with risks. Optimists believe that accepting the risk of coronavirus is necessary for the economy to have a ‘V’ shaped recovery.

How do you weigh the pros and cons between the economy and the complications of the disease? The economy affects the livelihoods of millions of people and the current state is pushing more and more people into poverty. On the other hand the amount of people who will die may increase if businesses open and life returns to normal too soon. It’s a tough balance and I don’t know the right answer. I’m curious to hear what you think in the comments below!

I want to talk about the pessimist or bearish point of view. These people believe the markets will go lower. They argue that stocks like Amazon do not reflect the overall stock market. Many companies are losing a lot of money because people are not working and consumers are not spending. As you can see in the image below, many earnings reports will come out this week. Therefore this is a crucial week. I think this could be a catalyst to push the economy lower. It is also important to consider, that earning reports from April may not reflect the consequences of coronavirus as well as future reports in July might.

Pessimists have been comparing coronavirus to the last big pandemic: the Spanish Flu. The first wave of the Spanish Flu was in March of 1918, the second wave was in Fall of 1918, and the third wave was in March of 1919. Thus if the past is any indicator of the future, we may only be in the first wave of coronavirus, and we could have 2 more waves on the horizon. If that does happen the economy will continually go down. The economy is going to take a huge hit. We could have a huge recession.

However let’s consider there is only wave of coronavirus. What is the likelihood that people are going to return back to their normal lives immediately after quarantine ends? People will be skeptical for a few months afterwards. Will people feel safe flying? If people do not feel safe flying this affects the airlines and how many people would they can hire. Are parents going to allow their children to go back to school or university? There is going to be a lot of skepticism. It could take a lot longer for normalcy to return than what we expect.

I personally believe we are going to have different periods of quarantines balanced with gradual phases to ease back into the economy. I don’t think there will be normalcy for at least the next six to 12 months. I’m curious to see how it pans out. The government needs to be able to make sure that our healthcare system can handle the amount of infected people. Therefore I believe there is going to be gradual periods of easing back into the economy combined with periods of lockdowns. This is going to happen until we as a society develop herd immunity or we develop the vaccine. However I’m biased to the pessimistic side. No one knows what is going to happen.

I’m going to pull up some charts to show the technical analysis behind the bearish perspective. The SPY chart needs to break past this down trend line right here. If it breaks past, it’s going to test other levels potentially going all the way to this bottom or a little bit above it. In the case of the bullish perspective, if it comes to this level and it holds, then technically speaking it could go higher. However, on the bear side, what you really want to see is this first trendline break. We will know we’re going into recession if we break past this low that was from March around 218. If it breaks past this and goes lower, we are going to see it test levels potentially in the 180 range. That’s what the bearish side is looking for – first a break of the trend line and then looking for to break the lower.

I always like to think about both sides because it allows you to come up with a better decision without bias. We are in a key area – a gray zone. No one knows what is going to happen in the few weeks or where the economy will go in the next 12 to 18 months. Pay attention to the news and to earnings reports. Check out more posts like this below! Stay safe everyone.

Will the Economy have a 'V' Shaped Recovery?

So, you’ve decided that you wanted to trade! Trading can seem daunting at first because of your potential losses, but it can also be very rewarding in many different aspects! There are many benefits to day trading such as, A LOT of personal time for other hobbies, financial freedom, and being your own boss.

First off, we need to determine what you will be trading. Many beginners assume that being a day trader trades stocks, but you can also trade futures, forex, options; the list goes on. If you’re day trading for the first time, we recommend you picking only one of these four options and mastering it before you decide to trade other types of instruments. Next, you have to decide how much you are willing to trade. While you do need $25,000 to bypass the Pattern Day Trader rule, you can definitely trade below this value, but you will be limited to three round-trip trades within a 5-day period. Round trip trades are defined as buying or selling of a security and then selling it or buying it back depending on what you do. Keep in mind that most brokers have a minimum requirement of money in your brokerage account ranging from $500 – $5000.

After deciding what you will be trading and how much you are willing to invest into it, you will need to find a broker. Brokers can be a little tricky with all the fees and commission they tack on, but just remember to do your due diligence. Things to consider when you are looking for a broker:

We cannot emphasize how expensive it can get if you do not find a good broker. Commissions, margin rates, and other expenses can form a huge hole in a day trader’s profits. These commission costs can go from hundreds to thousands of dollars for traders that trade at a high volume.

Must have good research tools at your disposal.

The broker must have fast execution speed with real-time execution.

Make sure that they are regulated by an agency with important metrics that they are required to abide by.

Many day traders trade within the first hour the stock market is open, which is 9:30 – 10:30 AM EST or within the last hour before it closes 3:00 – 4:00 PM EST.  These are the best times to make the most money.

Deciding which stocks to trade can also be overwhelming with so many tickers to choose from. There are many ways to find which stocks you want to trade, whether it be your favorite company or you’ve done your research on certain companies. After you have picked your stocks, we recommend beginners to choose their top 2 stocks and trade these all the time. Once you’re comfortable with one to two stocks, then start branching out.

It is entirely up to you on how much money you want to risk, but it is recommended that you risk no more than 1-2% of your account per trade and assess the amount well ahead of time. Amateurs should stay away from trading on margins because most brokers charge high interest rates for borrowing their money.

If you are worried about losing all your money, you can also practice with a simulator. If you practice simulators, we recommend that you treat it as realistically as possible and that you are trading during the time that you will be most likely trading. Emotions can change your behavior, especially when you think you have “unlimited” money. So again, we recommend you to treat it as if you have that same amount of capital and trading at the optimal trading hours.

Enjoy and submerge yourself into trading! It can be nerve wrecking at times, but once you get the hang of it, it’ll be worthwhile. Don’t let your emotions get to the best of you and definitely do not over compensate for your losses immediately.  Recovering from losses can take time and be frustrating, but you have to learn from your mistakes over time and find the right strategy that is tailored to you.

You’ve all probably seen people with 4 monitors or even 6! But that isn’t really necessary. For beginners, having just 2 is enough. Setting up your trading station can be the most exciting thing to do, but it can be intimidating if you aren’t tech savvy. Setting up your trading station doesn’t have to be expensive. However, the most ideal computers for traders would be a gaming computer. These computers are designed for real-time performance and do not overheat that easily. Ideally, you’d want a computer that has a pure solid-state drive (SSD) of 256 GBs or more. You’d also need a minimum of 8GBs of RAM, but the more the better.

With modern day technology, wi-fi connections have improved significantly over the past. However, there are still people who believe that ethernet cables are better and more reliable. Picking your source of internet connection is entirely up to you and is nothing you really need to stress about.

Your choice of monitors is also entirely up to you. You can have 2,3,4 or even 6 monitors! If you are going for a low-cost trading set up, we recommend getting external USB monitors. The best feature about these is that they use one simple USB connection for both information and power, eliminating the messy need for multiple power sources and cords.

Mechanical Keyboards. You might want to consider a mechanical keyboard because it uses actual, physical switches underneath the keys to determine when you have pushed a key. Pressing down on these keyboards offers a different feel than your traditional keyboards. We recommend getting a mechanical keyboard because you’ll need to set hotkeys to quickly enter and exit trades without using your mouse often. Standing Desk. Sitting in front of monitors for several hours can be very taxing on your body. So if you are considering day trading the whole day, you might want to consider a standing desk. Standing desks would be beneficial for your posture and health as it burns more calories and can reduce back pains. With all that being said, these purchases are all up to your preference. You can definitely make the same amount with a simple computer or laptop setup!

Now that you have all the products, you’re going to need to pull up some graphs and charts on the monitors you have. Every trader has their own personal set-up that matches their trading style. Try not to overwhelm yourself with all the charts and information. We recommend that you take things nice and slowly. An unorganized station would just cause more stress on you.

Educate yourself more on trading and enjoy the journey! Continue finding different trading strategies that seem to fit your personality and keep on studying. What’s the point of setting up your trading station if you don’t put enough work into learning how to trade!

So, you’ve decided to become a day trader! Congrats on going through with this journey, where you will learn many invaluable skills. But you’re probably wondering when you’ll be making six figures. We need you to get out of that mindset first and think baby steps. After all, Rome was not built in one day! Several people claim that they’ve made $20,000 to $40,000 a week and sometimes even in a day! While that is possible, it is also uncommon. There is no simple formula in becoming a successful day trader. Everyone acts and thinks differently based on their emotions.

In this post, we will break down some of the essential elements that make you a successful profitable day trader.

First off, you have to be real with yourself and set a realistic goal. It is nice to have ambitious goals, but you have to think logically as well especially when it comes to your financials. Not everyone will have the same goal either. Some people’s goal might be to just simply learn how to trade and others make 6 figure salaries so they could live a more comfortable life. Your goal, depending what it is, also determines the time period of getting there. The less you care about making huge profits, the less risk you’d be taking when you trade and vice versa.

We recommend that you increase your desired profit goals gradually and slowly reach each goal. By doing this, you can become a profitable trader quicker.

As mentioned in previous posts, you have to find a trading style that fits your personality and schedule.

If your schedule is packed, then you are most likely a swing trader. Swing trading positions can usually last two to six days, but it may last a little longer as well. With swing trading, you are trying to identify the overall trend and then seize the gains within that trend. Technical analysis is usually used to help these traders take advantage of the trend and improve their trades. Swing traders don’t need to observe the market all day long.

However, if you have more time on your hands, you can be day trading. You would be spending more than 2 hours each day (or less if you want!) to watch trade setups and short-term price movements. By the end of the day, the day trader exits all of his or hers trading position and do not have to worry about any news that could impact the market overnight. With day trading, you are looking for a quicker compounding of returns. Volatility works in a day trader’s favor granted you are on the right side of the trend.

There are many types of strategies when it comes to trading, but that is the beauty of it. You get to mix up different strategies and mold it to your liking.

Chatrooms can be another way to becoming a profitable trader. The trading community can provide a lot of help to you as well. If you were curious on how other people think, you can just ask them through the chatroom. If you need help figuring out how much internet speed you need, the chatroom is right there for you. There is a lot of knowledge floating around when you enter the room.

Traders who have studied economics and finance might have an easier time grasping the idea of how the markets and profitability work. But that isn’t the only way to becoming a profitable trader. This is not meant for any discouragement, but just informing you that people have different learning curves!

In order to become a profitable trader, you must constantly keep practicing. Just look at the all-time greats. Michael Jordan was cut from his high school basketball team the first year he tried out and now he is one of the best basketball players in HISTORY! He became so successful because he practiced all the skills a basketball player needs. So just like in trading, you need to practice all the skills a trader would need and that takes time and effort. You will need time to refine your trading strategy, so that you can apply it to your live experience in the markets. Education is important, but just like every game and sport, you have to be thrown into the ring to learn from experience.

Ultimately, becoming a profitable trader is all on you and how much you’re willing to put in the work. Don’t let losses discourage you from trading because those losses are there for you to learn and become a better trader. Take note of your mistakes and make sure you don’t make them again! If you are disciplined and revise your trading to constantly improve on your mistakes, you will become a profitable trader in a shorter time!

Trading is so seductive. You scrape together a little money, pick a hot stock, buy a few shares, and presto! Just like that you can make a mint. Heck you don’t even have to pay commissions anymore thanks to “commission-free” platforms like Robinhood, TradeZero, etc.  You can’t go wrong!  Right?

At least that’s how many would like to believe it works. And there are countless programs and courses that will tell you it’s just that easy. But ask any seasoned trader and they’ll tell you – that’s just simply not reality.

So to help dispel some of the myths and inaccuracies that are out there, here is our list of the biggest mistakes we see new traders make (and a few of our own are thrown in for good measure!)

If you talk to new traders, a majority of the time you’ll hear them talk about how they watch CNBC or whatever TV news program and buy whatever is being talked about there.  After all, it’s on TV so it must be trustworthy!

Unfortunately even if you believe that nobody on TV has an agenda for recommending a particular stock, the fact is that by the time that information gets to broadcast it’s way too late.  The information is already priced into the market.  There’s a reason why there is a saying “Buy the rumor, sell the news.”

There’s another old saying in the trading world that goes something like “If you liked it at $50, you must love it at $30!”

The idea this saying conveys is that if you believe in a stock, then you should always buy more if the price drops.  This way your average purchase price gradually gets lower, and lower.  This is also known as “lowering your cost basis.”  There is nothing wrong with wanting to lower your cost basis, and in fact there are very effective options strategies designed to help you do exactly that.  But blindly buying more of a stock just because the price has fallen, is foolish.

Take Enron or Bear Stearns,  for example.  With either of those companies, if you had continued to buy as the price fell you would have eventually lost everything when the companies went under.  Averaging down isn’t always bad – it’s an important component of another widely-used strategy known as “dollar cost averaging” (where you buy a fixed-dollar amount of something on a regular schedule, regardless of price).  But every trader needs to have a method in place for identifying when whatever they are trading has lost “too much” and it’s time to close the trade.  Professionals only buy more when price falls, if it’s a part of their larger plan.

New traders are especially prone to fall into the trap of believing that “this trade will be the big one” and placing a much larger trade than they usually would.  They are so confident that this trade can’t lose, that they will sometimes risk their entire account or more.

The problem with that is randomness.  Nothing is ever guaranteed in trading, and you can always be wrong.  If your “can’t miss” trade actually does miss, and you went “all-in” so to speak, then you stand to lose much more than you can comfortably afford to.  By keeping your risk size consistent (willing to risk say 1% on every trade no matter the size of the trade), you will never get wiped out by a single trade going against you.

Everyone knows the idea is to buy low and sell high, right?  Then why does the average retail trade consistently do the opposite?

This comes down to human psychology.  People love to be part of a crowd, so when “everyone” else is buying that hot stock, you want to also.  And when everyone else knows that company is going to zero, your tendency will be to want to sell too (TSLA is a great recent example of this, where extremely “good” news has come out and the price fell hard, then incredibly “bad” news happens and the price jumped up).

What traders need to do, is go by the charts.  Ignore news, ignore your friends (unless they are professional traders, of course!), family, coworkers, your Uber driver, etc.  The chart is never wrong, and since the public is almost always wrong, you probably want to consider doing the opposite of “everyone else”.

Another psychological trading issue, is the desire not to be “wrong”.  New traders especially think trading is all about being right, so they resist accepting a loss.  They will let losing trades go way too far until they are so big they “can’t” take the loss now.

And on the other side when they have winners, they will cut them short and take the small profit believing “you never go broke taking profits”, when in reality they just cut the legs out from under their profitable trade.

Keeping losses contained so they never cause serious damage, and allowing winning trades to reach their true potential, are two hallmarks of the professional trader.

Every seasoned trader knows about using stops.  They are simply an order that is placed with your trade, where if the price goes against you a certain amount, the trade is closed and you take the loss automatically.  They “stop the bleeding” so that you don’t lose too much.

The key here is automatically.  Leaving your exit up to you to personally push the button at the right time, is a sure way to lose a lot.  Letting the computer execute your order at the appropriate time without hesitation, doubt, or any question is the safest way to go.

New traders will tend to be so focused on gains that they pay little attention to the possibility of losses, and so aren’t prepared for them.  Then a trade goes against them and they freeze, unsure of what to do.  A stop loss order will prevent that, getting you out of the trade immediately.

Many brokerage firms now offer products that appeal to the trader with a very small account.  Thanks to the concept of leverage, a very small amount of money can actually control a much larger amount.  This means that you can effectively trade a much larger amount of money, than you actually have.

Leverage is great, but must be used properly to avoid getting into trouble.  When the new trader will often do, is trade the largest size they can, rather than a size that is appropriate for their account.  Let’s give an example:

A trader with a $5,000 account decides they are going to trade options.  They discover that they can buy an option contract that allows them to control a particular stock, currently priced at $50, for 60 days.  The cost of the option in this example, is just $100, and it will control 100 shares of stock ($5,000 worth of stock).

Now they could also just buy the stock, but instead of just buying 100 shares of stock for $5,000, they realize that they could instead buy 50 options contracts for the same $5,000 – but now they control 5,000 shares of stock worth a whopping $250,000!

Now they stand to profit as if they held a much larger position, but what they fail to take into account is the fact that they can (and likely will) also lose their entire account value very quickly.  Instead, they should risk no more than 2% of their account – or $100 – which means they can buy a single contract, control 100 shares ($5,000 worth of stock) without risking their entire account.

This is a crude example, but the key point here is to recognize the actual risk you’re taking in your account, and trade appropriately.

With how easy online trading has become, it’s quite common to see a new trader decide to trade oil futures, index options, a couple of Forex pairs, and some ETFs for good measure.  All at the same time!  This is a very bad idea.  Focus is so important in trading, and getting to know a specific market extremely well, is a crucial component of any long-term trader’s survival in the markets.

Select one primary market you intend to trade, and maybe a secondary one in case the primary has no opportunities currently.  Then stick with those two.  Get to know them intimately.  Understand how they move at different times of day.  Are they impacted by any specific news events?  Are there any scheduled announcements like inventory reports or economic data that will affect them?  Understand what sort of leverage they may deploy if any.  Know what your margin requirements are, in the case of futures especially.  And above all recognize if these products are well suited to your style of trading whether you’re a day trader, swing trader, scalper, or anything else.

Getting to know just a very small “universe of markets will make it more likely that you learn to trade them consistently, and profitably..

These days trading commissions have gotten so low, that many people just ignore them or think they don’t really matter.  But as any active trader can tell you – they add up!  Especially if you are trading in a small account, commissions and fees will be a larger percentage compared to your total equity, and therefore must really be taken into account.

Taxes are another area where it’s easy to forget about them.  Some products (futures) are easier to report than others (stocks) and some barely even have any defined reporting requirements yet (cryptocurrencies).  No matter what you trade, taxes matter and if you don’t factor them into your bottom line, you could easily wind up not being able to pax the government when the time comes, which obviously comes with some very unpleasant consequences.

The best traders are often quite humble, and don’t brag about their results.  Professional traders know that it is a never-ending journey of knowledge and experience, and are always looking to sharpen their edge.  The moment a trader thinks they are invincible, or “on a roll”, etc. is the exact moment they will probably face some painful losses.

Beware of your own overconfidence as you progress in your trading career.  You should improve, and constantly increase your account size.  But keep cool about it and don’t let it go to your head!

IT’S NOT AS SIMPLE AS:  “IT TAKES MONEY TO MAKE MONEY”

This gets asked a lot by new traders.  A common saying is “it takes money to make money.” While there is some truth to that, it’s not quite so simple.

A good way to determine how much money you realistically need in a trading account, is to examine several critical questions:

This is easily overlooked by beginners who might not even know how many choices a trader has these days.  Most are probably familiar with trading shares of their favorite companies. They may not realize that there are also ETFs (Exchange Traded Funds), Futures, Options, ForEx (Foreign Exchange), and more.

This matters because different trading vehicles require different amounts of capital.  Stocks for example are the “worst” in that they generally require the full cash amount of the purchase.  If you want to buy 100 shares of a stock that is at $25 per share, you would need to have at least $2500 in your account (plus commissions, of course).  Note that I’m ignoring margin trading for purposes of this post.

Futures are by definition leveraged instruments.  What this means is that you only need to place a small deposit to place a large trade.  What you actually control is worth more than the deposit you place. Sometimes much, much more.. . For example if you traded 1 contract (the smallest amount you can trade in futures) of the S&P 500, known as the “E-mini,” you would be controlling an asset worth about $129,000 at the time of this writing.  However you would only have to put up between about $500 and $6,000 depending on your broker’s requirements.  Thus a small amount of money controls a very large amount, which is the basis of leverage.

Stock options control a larger asset than you are paying for, but in a slightly different way.  There are many varieties of options that can be traded, but the most popular ones control 100 shares of a stock. This is called the “underlying.” only for a small cost.  For example you might be able to buy an option which allows you to control 100 shares of XYZ stock. Let’s say XYZ is currently trading at $50. Therefore the real value of the asset you control would be $50 x 100, or $5,000 for a price of only $200. The big catch with options is that they expire at a future date. You need to be aware of that.  In this example $200 is controlling $5,000 worth of asset, so again you are employing leverage.

Forex is trading in foreign currencies. This is another type of product that employs leverage similar to futures. Forex can have incredibly high amounts of leverage, in some cases as high as 400:1. So every $1 invested would control $400 in assets.  This can be especially useful for small traders, but can also wipe them out quickly if they aren’t careful.

Leverage is especially useful if you don’t have a large account to start with.  Perhaps you only have $2,000 with which to begin your trading career. You could trade 1 contract of various futures products, or trade maybe a few options contracts, or get your feet wet in Forex.  But stock trading would be difficult unless you traded only very low priced stocks.  Even then you would need to beware of commissions charged by your broker because they could be a high percentage of your total account.

There is a concept called Position Sizing which is a mathematical formula that determines how much money you can trade, based on how much you are willing to risk. Nobody enjoys losing money, but some losses are always going to happen to even the best traders. They need to determine up front how large they are willing to let those losses be. A good general rule to follow is: no more than 2% of your account should ever be at risk (less is even better).

That means if you had a $20,000 account, you would only be willing to lose $400 (2% of your account) in a trade.  If your trade lost that much, you would close it and accept the loss.  This way no single trade can wipe out your account.

The other piece of information required in this formula, is the actual dollar amount of risk in our specific trade. This means we have to decide up front how much we are willing to lose if we are wrong. Say we buy stock of company ABC at $20.  Then we decide we will exit the trade if it falls to $18.25.  That’s a $1.75 risk, or about 9% of $20.  If we know we can only risk up to 2% of our account on any one trade, then we can determine how many shares we are allowed to trade, with the following formula:

Account Risk Amount (in $) / Per-Trade Risk (in $) = Position size in shares

To continue this example: $400 / $1.75 = 228.47 shares

In this case, we can only trade a maximum of 228 shares. Always round down to the nearest even number. Stay safe with our risk parameters. If we buy our 228 shares at $20, and we are wrong on the trade and it drops to $18.25, then we will have hit our maximum allowable loss of $400. Therefore we will close the trade and move on.

By using the position sizing formula, we can determine how much money we will realistically need to have in our account. In this example, we would have to have about $5,000 in the trading account, in order to make the trade.  Obviously with a smaller sized account like this, we will probably want to focus more on lower priced assets. An alternative is to use leverage on other products, as previously discussed.

If you have a goal of being a millionaire trader overnight, you may want to rethink your targets. Trading is all about making steady, consistent gains and growing your account. This happens over time, and you should not fall into with a “get rich quick” mindset. That being said, it is mathematically feasible to generate returns of 10% per month, even on a small account. Over time your account can grow, and the results compound.  A $10,000 account compounding at 10% per month, would turn into around $30,000 after one year with no withdrawals and consistent trading performance over that time.

As you can probably see, there isn’t a perfect one-size-fits-all answer to the question of how much money you need to start trading. Will you be day trading or will you be holding for long term investments?  How risk tolerant are you? How much money do you expect to make?

It is possible to open accounts with some brokerages with extremely small amounts of money – even just a few dollars.  But to be realistic a trader would be wise to start with at least $1,000 to $5,000 to take a moderate number of trades and learn to trade with consistency.

First, congratulations on taking the first step – asking the question on how to get started a a trader!  This shows a recognition on your part that there is knowledge you don’t have, and should acquire in your journey to becoming a profitable trader.  This takes us perfectly into the first thing I would advise:

We live in the information age, and it’s never been easier to learn things.  At the same time, many people think that all they need to do is watch a few YouTube videos or read a few eBooks and they’ve got all the knowledge they need to make a fortune in trading..  Imagine if people applied that thinking to being a doctor, lawyer, firefighter, or nearly any other profession.  Seems crazy doesn’t it?

Part of the challenge is that there’s no one-size-fits-all way to trade.  If you learn a “trading system” from someone, then you are only learning that specific system.  You aren’t actually learning how to trade.  If all you ever want to be able to do is trade that one system, then that’s fine.  But every system eventually stops working because the market behavior changes.  If you’re unable to adapt to those changes, then you’re going to end up on the losing end of things.

We always suggest that people study market dynamics.  Learn what makes the markets move, and in what ways they tend to move.  There are certain behaviors in the market that have been observed for over 100 years and still happen to this day.  If you know about these things and learn how to exploit them, you can stack the probabilities in your favor and create a positive bias to your trading results that will stay with you regardless of market changes.

These days, trading your own accounts usually means trading from a personal computer.  We live in a golden age of personal technology and there’s never been more options available to us.  But this also introduces a lot of confusion over what to buy and what to use.  Every hardware and software vendor promises that their tool is “the one” that will make all the difference for you.  Indicators vendors in particular preach that their indicator is the “holy grail” and generally have lots of pretty charts and graphs to back it up.  But how do you know what will actually work for the long term, and not get trapped into the never-ending search for the next tool?

The fact is that most any professional trading platform will include with it all the tools you really need at the beginning.  Sure there are additional 3rd party tools that bring certain things to the table.  But if you’re looking to get started on the right foot, then you should keep it simple.  Get a decent computer running a solid platform like TradeStation, ThinkorSwim, or NinjaTrader and learn it inside & out.  TradeStation in particular is outstanding with the amount of free educational material they have at TradeStation University.  But there is tons of information out there on all the major platforms.  I strongly suggest you know your tools.

I’m guessing this won’t be an issue for you, since you’re already here reading this article.  But the fact is that I’ve never met a successful trader who figured everything out completely on their own.  At some point they all had to learn from someone who had gone before them. – even if that’s just in the form of reading a book and implementing the information.  More often though, at some point in their journey they found a mentor.  Someone who was at the level they themselves aspired to be – or was at least several steps farther along the journey.

When you find someone who has the results you want, and is willing to share that knowledge with you, take advantage of it.  There is no better investment than in yourself, and buying knowledge will always get you where you want to go faster than figuring it out for yourself.  Perhaps I’m biased, but I happen to think we at Stock Navigators offer just the sort of program that traders of all levels will benefit from.  If you want to find your way in the markets, we would be proud to help you learn to trade the right way.

One of the main traits every successful trader has in common, is discipline.  Without discipline, traders overtrade, trade impulsively, revenge trade, and make all sorts of other mistakes.  With proper discipline, they wait patiently for their trade to set up, execute it with appropriate size and risk, and manage it through to completion and ultimately make profits.  A trader without discipline is no different from anyone else who wants to excel in an extremely challenging field, but refuses to follow rules or apply a consistent approach.  They will inevitably fail.

For example. it is much easier to be patient when you know what you are waiting for.  If you know exactly how supply & demand work, and you can put the correct Buy and Sell Zones on your charts, then you don’t need to do anything more than wait for price to reach your zone.  Then, and only then, do you act on the trade.  And if you know where you should be placing your targets for maximum profitability, then too you need only wait and let price come to you.  But fail to cultivate this essential skill, and you have failed before you begin.

Do you have trouble deciding what socks to put on in the morning?  Can’t decide which flavor to get at Starbucks?  Then you’re going to struggle as a trader.  Trading is largely about making decisions.  Dozens, even hundreds of decisions go into any one trade.  What timeframe will you trade?  What instrument?  Will you buy or sell?  When?  How much risk should you take?  How much potential reward is there?  When should you enter?  Seven questions already and we haven’t even placed the trade yet!

This is what you’re going to be faced with on a constant basis as a trader.  An endless stream of decisions coming at you and needing to be answered.  Sometimes you’ll have time to think about the answers.  Other times you will have to make a decision in a split second.  If you’re not able to react quickly to changing conditions, the market will gladly take your money away without even so much as a “thank you”.  Work on your decision making ability.  Put yourself into situations where you will have to make lots of decisions under some kind of time constraint.  Maybe find a video game (or heck, even chess!) that has some kind of time constraint where you must decide and act quickly.  Whatever you do, make sure you get very good at quickly analyzing situations, deciding on a course of action, and acting on it.  This will serve you for as long as you stay in the markets.

So there you have it, five key components to getting started as a trader.  As always if we can be of any assistance to you in getting where you want to be as a trader, reach out to us by emailing support@stocknavigators.com.  We’d love to hear from you.

Questions about chart types come up quite often.  With all the possible options available in a modern trading platform, it’s not surprising that there is plenty of confusion around this topic.  Allow us to clear some of that up for you.

It’s important first to distinguish between the type of chart being used, and the timeframe of the chart.

Chart types include things like Line, Bar, Candlestick, Renko, Kage, Point & Figure, etc.  These alter the way the chart actually looks, sometimes drastically.  This is because different chart types handle the data differently.  In any given moment of the stock market, there are generally only 5 pieces of data to be calculate – the open, the high, the low, the close, and volume.

Written By Traders For Traders

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