With about 80% of day traders registering -36% of losses in their first year of trading, it has never been more important for new traders to properly learn how to make money trading stocks. 

The stock market will always have its winners and losers; however, by following the best practices common to winners, you can turn the tides in your favor. 

In this article, we show you how to best profit from playing the stock market. 

Decide which type of stock trader you’ll be

Stock traders are a diverse bunch. 

There are scalpers that enter and exit a trade within minutes and hours; day traders who buy and sell stocks within a day; swing traders who set a target price and stop loss and wait for the stock price to reach either before selling; and position traders who buy at the beginning of a trend and exit at its end. 

The first step towards profiting from stock trading is to identify which type of stock trader you are. 

This will determine the amount of time you have to study a stock, your risk tolerance, and how often you need to make money from the market.   

Define your stock trading strategy 

Within each type of stock trading, there are various strategies that people have adopted over the years. 

The two most important components of every trading strategy are candlestick patterns and indicators. 

Traders use these two in various ways to make buy and sell decisions. Some favour certain candlestick patterns – while others favour others (bullish engulfing, doji, and hammer are examples); it’s the same with indicators (examples include MACD, bollinger bands, stochastic oscillator, etc.). 

Once you have defined the type of stock trader you are, you must create and stick to a particular strategy. 

This is where it is important to learn from other accomplished traders. 

Use their experience to shape your strategy but don’t copy another person’s strategy in its entirety. Tweak it to reflect your own situation, experience, and financial goals. 

Risk management and diversification

While a stock trading strategy tells you when to buy and sell, a risk management strategy tells you how much you should commit to each trade. 

No matter how proven your strategy is, there will be times when you lose some trades. 

Risk management helps you set a maximum amount that you can spend on a particular trade based on your total stock trading capital. For example, if your capital is $10,000, you can decide to only spend 1% of your capital on any given trade at a particular time. In this case, you will only spend $100 on a trade. 

If you lose, you have only forfeited a maximum of $100. 

Let’s say you didn’t have such a risk management strategy and you had put $8,000 on this one trade; 80% of your capital would have been put at risk with one trade. With risk management, you can only lose a maximum of 1% of your capital at a time. 

By thus diversifying across various trades (100 instead of 1), you can reduce your overall risk compared to investing all your capital in one trade. 

So, decide on the percentage that is fine with you and stick to it. Remember that the only money you can grow is one that you have not lost. Therefore, while thinking about profit, remember that trading is risky and protect your capital with risk management. 

Keep refining your strategy

As you keep trading, monitor your performance and unearth insights that can help you further refine your strategy. Look at the trades you lost and consider how your strategy can be refined to reduce them.

However, note that you will never come up with a strategy that will make you win every trade. The goal is to win more than you lose and to increase the number of wins over time. 

Conclusion

It’s also important to buy and sell stocks with a platform that offers the best value for money. 

For example, with Sarwa Trade, you can trade at zero commission, and with zero transfer fees from your local bank account to your trading account. You can also start trading with as low as $1 and buy a fraction of a share if you don’t want to buy the whole thing.

So, decide on the type of trader you want to be, define your trading and risk management strategy, trade on Sarwa Trade for the best value for money, and keep fine-tuning your strategy to increase your wins.