As the pandemic took shape in early 2020, the market saw the largest influx of new traders in over two decades. Much of that was driven by furloughs, stimulus payments, and a desire to join in on what quickly became the hottest action since the dotcom bubble days. As was the case back then when people suddenly had the ability to trade stocks from the comfort of their living rooms (and online brokers slashed commissions), the recent elimination of  commissions altogether, gamified trading apps, and the ability to trade fractional shares, have only made it easier, cheaper, and more convenient for people to actively trade stocks.

Of course, the majority of new traders (many of whom enjoyed instant success) learned quickly that prices don’t always go straight up. The reality is that the recent bear market and tightening economic conditions have pushed many of those new traders right out of the market as quickly as it sucked them in. 

However, a small group of those new traders has learned what it means to be a “real” trader, and in the process, are developing the skills that will provide them the ability to make money for the rest of their lives.

Accordingly, the most important thing that traders must learn is how to deal with (and manage) their risk. A supply of capital is essential, and as long as you prioritize preserving and protecting it, you will have unlimited opportunities to find great trades.

One of the biggest mistakes that new traders will make is looking to hit homeruns. Countless folks were wiped out by jumping in on the meme stock craze and the “YOLO” phenomenon of piling in and never letting go. Some folks got lucky, but there’s no better way of getting knocked out of the game. That is the one thing you must absolutely avoid. The second you think that you’ve “got it figured out” or that this whole stock market thing is “easy”, you’re finished. 

Instead, the essence of trading is risk management (which is why learning how to read charts is critical… but that’s an article for another day). Not allowing any one trade have the ability to cause a devastating decline in your portfolio is essential, meaning that you must always have a clear plan for every trade, continually update that plan as the trade develops, have a clear “tap out” point (and then honor it), and an area where you will harvest gains. 

This is the continuous, difficult work of trading. Most of our time is spent managing existing trades and digging for new ideas.

Of course, developing traders don’t often have a large amount of capital to manage, so in order to make any meaningful headway, they look to smaller, faster-moving stocks. Looking at mega-cap stocks that might gain 1% on a really good day just doesn’t move the needle nearly as much smaller names that move faster, but also carry much more risk. 

Trading those types of stocks requires an ever higher level of discipline and planning. Timeframes must be shorter and your ruthlessness must be far greater. You can’t give them the sort of wiggle room that would do real damage to your portfolio. 

That’s not to say that you shouldn’t take on risk or press harder when you’re leaning the right way on a trade. There will always be tension between catching a big move and not letting profits slip away. There’s no easy answer, but simply staying very aware of the risk involved is the best thing to do and allows you to live to fight another day.

So, for those who have been bitten by the trading bug and want to know what’s required to turn a diversion into a vocation, the most important thing to focus on is preserving and protecting your capital base. If you view every single trade through the lens of risk management, then you can turn your attention to finding the next opportunity. 

As with everything in life, nothing that’s worth doing is easy and there are never any guarantees of success, but for those who want more, there are few vocations as intellectually stimulating and financially rewarding as trading.