# 1 Invest the money you do not need
The fatal mistake is to invest the money you need. Imagine that you have a sum of money to finance your retirement or to buy your home.
What would be your state of mind when you put this money on the stock market with the risk of losing everything. You will have such pressure that you will be unable to reason properly and keep your cool.
At the slightest complication, you will not even wait for your invalidation threshold to sell your positions. Thus, you will accumulate small losses which, put end to end, will end up seriously starting your capital of departure .
Never forget that investing in the stock market can be very risky because you could lose all of your starting capital . There are even financial instruments like futures contracts that can make you lose even more than the starting bet. You will understand then that it is totally inadvisable to go into debt to invest in the stock markets.
# 2 Clarify your expectations and goals
clarify his investor profileBefore you start trading , you have to ask yourself about your expectations and objectives. Is it to make capital grow for your retirement, to pass it on to your children or simply as an alternative to saving no more money?
Personally, my goal is to invest a small seed money that I do not use in an immediate project. This capital is reserved for my stock market investments and will not be used for other purposes. I place this money on the stock market to make it grow according to my own trading strategy based on the technical analysis of stocks and trackers.
You will also need to determine the period of time you will invest. Is it a medium-term investment over a few years or a long-term investment over 10 years?
It is important to answer these questions because the answer is decisive in the selection of the financial product and the investment method . Indeed, if you only have capital for one or two years, it is not appropriate to invest in government bonds that are often preferred for long-term investments. You will not adopt either an investment method based on fundamental analysis because it only bears fruit on long terms (3, 5 or even 10 years).
# 3 To get started on the stock market, define your investor profile
Once you have clarified your expectations and objectives, move on to the next step and define your investor profile. There are two big schools to invest and start trading well.
The fundamental analysis is based on the interpretation of accounting ratios and financial (to compare companies among them) to identify investment opportunities (eg the price / earnings ratio).
You invest for the medium to long term in the hope of gaining capital gains and dividends . Fundamental analysis is particularly recommended if you are investing for the long term.
Indeed, the fundamental analysis is to bet on the performance of a company , the marketing of a product or a service or the restructuring by a competent management .
In other words, the results can take several years to appear and have a positive impact on the company’s stock price.
The technical analysis is to identify opportunities starting from the graphical analysis of the current and the interpretation of technical indicators . This is the investment method that I chose because it offers the advantage of investing also in the short-term, the medium-term and even in the longer term.
Technical analysis is a very personal investment method because you can build your own strategy . It is suitable for both aggressive traders and less risky investors.
know your investor profileIf I had to define my own investor profile? It is obvious that I am a short-term investor. I usually keep my positions for several weeks but rarely more than two months. I use exclusively technical analysis, chartism (study of stock charts) and Japanese candlesticks (graphical indicator). The latter are also very useful because they allow me to analyze the psychology of the market on highs or lows. They are often fearsome for identifying buying or selling signals.
The technical analysis allows me to identify trends market and confirm my position. In addition, the chartism gives me indications on the psychology of the stock markets. Thus, I can anticipate over several weeks the realization of a chartist figure and take a position accordingly.
# 4 Write a trading plan
You now know your investor profile, it only remains to plan your investments ! Prepare a trading plan that will clearly reflect your objectives, your investor profile and your investment method.
Define which financial product you are going to treat and hold a watchlist . It takes the values that you think have significant potential. It is based on this list that you will trade when the stock markets are open.
My trading plan can be summed up in a little notebook that I always have at my disposal. I detailed my trading strategy, the technical indicators that I use and the conditions necessary to proceed with the purchase:
3-moving average bullish configuration : The 5-day moving average is above the 20-day moving average, which is also higher than the 50-day moving average.
The RSI indicator that measures real profits online buying or selling pressure must be bullish. Graphically, this indicator bounded between 0 and 70 must be greater than 40.
The stochastic oscillator should be bullish (the signal line% K is greater than the slow curve% D) and should be above 30.
Courses in the high range of Bollinger Bands
Too often, I forgot to write down the reasons for placing an order on the stock markets. This made any exercise of hindsight and improvement impossible. I understood that it is imperative to learn from his mistakes and I am now improving my trading strategy for several years by analyzing each of my orders a posteriori.
Finally, at the close of markets, I maintain my watchlist . This includes all the values that seem promising from a technical analysis point of view. I monitor them closely, annotate the course graphics and indicate the conditions that would push me to buy. It becomes very easy to refresh this list daily and remember when to invest in value.
# 5 Manage the risk of your stock market portfolio
A stock market must be diversified, ie you have to vary your investments in different sectors of activity and possibly in different economic zones. However, we must not fall into the other way through which would be to multiply the positions in the portfolio. In general, a stock market portfolio contains between 8 and 12 stocks .
In addition, set your maximum risk of loss over your entire portfolio (for example 2%) and replicate this risk on each position to maintain control over your potential losses. The money management allows you to properly arbitrate your wallet.
My stock market portfolio consists of a maximum of 7 to 8 stocks . I do not want to dilute the performances of positions that I consider promising.
In addition, I want to focus totally on these few positions and analyze day after day their performance and the validity of my approach. As far as my risk aversion is concerned, I assume that a risk / benefit ratio should be at least greater than 2 .
First I calculate my target price and my invalidation threshold and finally, I control the risk / benefit ratio. This is the only way to know if the game is worth the effort.
These few principles will help you get started on the stock market and avoid the most common pitfalls. Here are some tips that I think are effective, but it’s up to you to define your own approach and your trading strategy. Starting on the stock market takes time but one or two hours a day will already be enough to seriously constitute a stock market portfolio.
Do not forget to share blogs or forums with the traders community to benefit from their experience. Also share your successes or failures with other trading enthusiasts.
Thanks to Maxime for this article which I hope will have enlightened you a little more on stock market techniques, especially on technical analysis. I particularly enjoyed sharing his graphical analysis techniques and the indicators used.
If you want to continue on this topic you can read the article Learn the stock market on the blog . You do not feel ready yet to get into this field but you are looking to make money on the internet, go to the article to make money online .