A trading system for rookies
Updated
There are many trading systems but most of them are very complicated for the novice trader.
The 30d/200d SMA trading system is simple, easy to comprehend and gives few and reliable signals without many false signals.
The trader has to draw the daily diagram of the stock. Next they have to install three simple moving averages of prices, the 30d SMA, the 200d SMA
and optionally the 9d SMA (to track the price formations).
Price movement below 200d SMA most of the times signals the change of the stock’s long term trend to declining and this is the reason we must never buy
a stock below 200d SMA. Correspondingly, price movement below 30d SMA most of the times signals the change of the stock’s midterm trend to declining and
this is the reason why a new trader must never buy a stock below 30d SMA.
Following these two rules, a new trader can avoid getting trapped in a declining trend that can diminish their capital.
New traders are unaware of the risk of holding a stock with a downward trend. They are carried away by the excitement and hope of its prices returning to
the levels they bought it and do not sell it. So, when they now have a loss of 70-90% in the capital they invested, they are seized by panic and sell the share
at humiliating levels, losing their money. This is also the main reason that the 90-90-90 rule applies, i.e. 90% of new traders lose 90% of their capital within 90 days.
The second important reason is that they follow the very short-term trend of the share that gives repeatedly false entry/exit signals, so they do too many
transactions that lead them to big losses. Only very experienced traders can successfully track the short-term trend of a share (minutes, hours). My opinion
is that a new trader should follow the 30d/ 200d SMA trading system, which applies in the daily stock diagram, and leads them to a small number of transactions
with minimum risk. In fact, this system, if firmly followed, may lead them to big gains.
Later when a rookie trader gets experience, they can use the same trading system for shorter timeframes i.e. in stock diagrams of 1 hour, 30 minutes,
15 minutes and so on, timeframes.
A complete list of guidelines for the novice trader is presented next. I am sure that following these guidelines, a novice trader can beat the 90-90-90 rule.
The 30d/200d SMA trading system is simple, easy to comprehend and gives few and reliable signals without many false signals.
The trader has to draw the daily diagram of the stock. Next they have to install three simple moving averages of prices, the 30d SMA, the 200d SMA
and optionally the 9d SMA (to track the price formations).
Price movement below 200d SMA most of the times signals the change of the stock’s long term trend to declining and this is the reason we must never buy
a stock below 200d SMA. Correspondingly, price movement below 30d SMA most of the times signals the change of the stock’s midterm trend to declining and
this is the reason why a new trader must never buy a stock below 30d SMA.
Following these two rules, a new trader can avoid getting trapped in a declining trend that can diminish their capital.
New traders are unaware of the risk of holding a stock with a downward trend. They are carried away by the excitement and hope of its prices returning to
the levels they bought it and do not sell it. So, when they now have a loss of 70-90% in the capital they invested, they are seized by panic and sell the share
at humiliating levels, losing their money. This is also the main reason that the 90-90-90 rule applies, i.e. 90% of new traders lose 90% of their capital within 90 days.
The second important reason is that they follow the very short-term trend of the share that gives repeatedly false entry/exit signals, so they do too many
transactions that lead them to big losses. Only very experienced traders can successfully track the short-term trend of a share (minutes, hours). My opinion
is that a new trader should follow the 30d/ 200d SMA trading system, which applies in the daily stock diagram, and leads them to a small number of transactions
with minimum risk. In fact, this system, if firmly followed, may lead them to big gains.
Later when a rookie trader gets experience, they can use the same trading system for shorter timeframes i.e. in stock diagrams of 1 hour, 30 minutes,
15 minutes and so on, timeframes.
A complete list of guidelines for the novice trader is presented next. I am sure that following these guidelines, a novice trader can beat the 90-90-90 rule.
Note
DisclaimerThe writer of this text is not an investment advisor. The preceding content is intended to be used for informational and educational purposes only. It is not an advice or inducement for the purchase or sale of the products mentioned. Before making any investment based on your own personal circumstances, it is very important to do your own research and analysis and also take independent financial advice from a professional to verify any information provided here.
Note
How a novice can beat the 90-90-90 rule1) A new stock trader should not start with big capital, because he has a 90% chance of unleashing it.
First he needs to learn to protect his capital and then increase it.
2) This capital should not be needed by trader, in order not to be dominated by the fear of losing it.
3) Nobody should buy a single share of a stock without studying technical and fundamental analysis.
4) A new trader's first goal should be to learn not to lose his capital and then learn to win.
He also has to accept that he will pay market tuition for his education (losing money in the beginning).
5) Trading is a process of knowing yourself, continuous self-improvement and overcoming your ego.
Traders without adequate knowledge of themselves and control over their emotions are doomed to fail.
6) The most destructive of emotions is hope. The new traders are trapped and while they continue to hope
that prices will come back, they are tearing down and draining their capital. Then the worst mistake they make
is to increase their position to drop the buying average. We only increase the position on the rise, not on
the fall, and this must be forward-looking, that is, we buy more at the beginning of the rise and less afterwards.
7) A trader should never do scenarios for the course of a share. Market is unpredictable.
8) Always keep 50%-30% cash.
9) Don't put all your money in a stock. Divide your capital into at least 3 shares but no more than 5-6 to keep
track of them.
10) A new trader should never buy a share when it is below 200d SMA or below 30d SMA.
11) When a share breaks down 30d SMA or 200d SMA you must immediately sell it.
12) Trust nobody. Listen to everybody but check what they say with the most powerful tool, your crystal clear
logical thinking, free of emotions, as well as technical and fundamental analysis.
13) Build your own trading system in TradingView, don't lean on others.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.