How new traders can protect their capital
Updated
Note
The 30d/200d SMA trading systemThere are many trading systems but most of them are very complicated for the novice trader. The 30d/200d SMA trading system is simple, profitable, capital protective, 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.
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.
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.