Last Updated on 10 February, 2024 by Trading System
If you’re interested in learning about trading and how to play the stock market, the idea of choosing some college courses that teach trading might have crossed your mind. But is it really possible to learn trading in college?
We would say that it’s not possible to learn trading in college. While you certainly can take courses that will teach you the theoretical foundation for hedging, building portfolios, and other related topics, trading requires that you have a working and tested trading strategy, which isn’t taught in college.
We understand that it might come as a disappointment. What many people don’t know is that trading isn’t as theoretical as some might want it to seem. Ether a strategy works, or it doesn’t. The exact reasons aren’t that important, and many people get bogged down in this, most time to no avail.
Another thing to keep in mind is that you need to avoid herd mentality to stand a chance in the markets. What other people do simply isn’t relevant, and won’t work, since a true short term edge will be erased as too many people know about and try to profit from it. In other words, learning some common knowledge taught in college courses won’t take you very far!
So how should you go about to learn trading if college courses can’t provide the framework and process you need?
How to Learn Trading Outside of College
The first thing you’ll need to do is to ensure that you’re familiar with the subjects that are close to trading, stocks, and similar topics. For instance, you should be able to answer questions like:
- What are bear and bull markets?
- What causes stocks do go up and down?
- Different order types
Once you know the very basics about the financial markets, it’s time to move on to the fun part, which is analyzing the markets in order to find out when to buy and sell a stock. Let’s look at the two most common approaches, and which one you should choose.
Technical Analysis and Fundamental analysis
Technical analysis and fundamental analysis are the two big approaches to trading. We won’t go very deep into the difference, but here is the definition of both:
- Technical analysis aims to predict future price moves based on the historical price moves of the market.
- Fundamental analysis tries to look at the factors that have an impact on the price of a stock, such as industry-specific information, and financial ratios.
If you want to do short term trading, you should definitely focus on technical analysis, which usually has a more direct impact on prices. In contrast, fundamental analysis tends to forecast events that lie months or years into the futures, which makes it a less attractive choice for most short term traders.
With this said, let’s look at the exact steps you need to take to learn trading and start making money in the stock market!
Step 1: Learn Technical Analysis
The first step is to learn technical analysis. You may check out our complete guide to technical analysis, or find other resources online. Just don’t get too bogged down in specific buying and selling conditions, as these tend to not work that well. Instead, you will use the technical analysis you’ve learned to define the moves of the market so that you can simulate the performance of various setups on historical data.
Step 2: Learn Backtesting
The next step is to learn to backtest.
In short, backtesting is when you define the rules you want to test, using technical analysis, and then see how those rules have fared on historical data. Most traders never get to this stage, and trade based only on their guesses about what works and not. This, by the way, is one of the main reasons why 90% of traders or more fail. They simply trade losing strategies, without knowing it.
We have an extensive article on backtesting and how you can get started, which we recommend that you have a look at. However, if we were to conclude the steps you need to take they would be the following:
- Learn a coding language: You need to learn how to code your ideas so that they can be backtested Don’t worry if you have no programming experience. There are coding languages that can be learned quickly by beginners, such as Easylanguage. Here at the Robust Trader, we do offer courses for this as well.
- Learn how to backtest correctly: Unfortunately, you cannot completely trust anything that comes out of a backtest, before you have performed additional tests. This has to do with that the randomness of markets easily could get you fooled to believe that you have come up with something great, whereas it’s all the result of random patterns. Our article on curve fitting deals with this in greater depth!
- Keep Coming up with ideas to test: Going forward you need to continuously bring new, fresh ideas to the table, in order to keep the flow of new trading strategies coming. The reason is that trading strategies don’t last forever, meaning that they will need to be replaced eventually.
Step 3: Do Invest as Well!
Being a college student you have your whole life ahead of you, and with all that time, even small yearly returns will compound and grow over time. Therefore you should not only look to start trading, but also start investing your money long term.
The absolutely best way to invest if you have no experience is to go for an index fund. That way you invest in a broad basket of some of the best and most stable stocks, which will go up over time if they’re only given enough time.
Final Tips for College Traders
As a college student, you’re typically not in the financial situation to afford to lose a lot of money, and at the same time as you have to focus on your future career in the field you have chosen. As such, here follow some tips that apply especially to college students, but of course work fine as general guidance for everyone new to trading!
Take it slow!
Trading is a skill that is learned with time, provided that you put in the effort that’s needed. In other words, you will be much more prepared to make the proper decisions further down the road as you’ve gained some experience.
With that in mind, do start slow! Don’t risk too much money, but invest a little and see what happens. At the very start, you should even consider paper trading, with no real money involved. As time passes on and you remain profitable, you may increase the amount of money at your disposal.
Keep your expectations at a realistic level
If you think that you can double your money every year, you’re not completely wrong. However, it cannot be done while keeping a sensible risk level, which will work out long term.
Realistically you can make returns of between 20%-50% a year, with the right amount of work. That’s already a lot and means that your capital would double every 2-5 years, which is an excellent return. Especially considering that you’re so young, and have the time on your side!
Keep a trading journal!
This is a step that most new traders completely skip. And while we do understand that keeping a trading journal might not be the most exciting aspect of trading, it’s crucial for your success.
The trading journal is a document where you log everything trading related, such as the positions you entered and exited, as well as your emotional state during the execution of the trades. You also note eventual mistakes, or things that went well.
The whole point of doing all this is to have something to go back to at a later stage. When you start to analyze the entries, you’ll soon start to note patterns and areas for improvement. We have made some of our biggest discoveries this way ourselves, and it has helped us tremendously to improve as traders.
You may read more about trading journals in our article on the top 10 benefits of keeping a trading journal.
Concluding Points
- As a college student, you have the time on your side, which means that any returns you get will amass over time and grow to quite respectable sums.
- In your quest for above-average returns, you may get some help from some college courses in the sense that they teach concepts that will broaden your understanding of the financial markets.
- However, to learn how to trade, you need to go against the herd mentality and use methods that are not employed by the masses.
- The best way to do this is to take a trading course. That way you will avoid many costly mistakes, and save a lot of time!