I started trading equities (and equity derivatives) full time last year, without any prior training or experience, beyond some basic economics and finance courses that I took in college many years ago. I figured things out as I went by making a lot of mistakes, and listening to many podcasts.
My portfolio has gone up ~600%, counting from Jan 2020. (The US stock market went up ~50% during this time.) This was done using a variety of strategies across a large number of individual names, so it probably wasn't just the result of luck. My AUM (assets under management) is currently about that of a small hedge fund. (I'd prefer to not talk about the dollar amount for privacy, but it is relevant because increasing AUM tends to make achieving high returns more difficult, so it gives some idea of what you can potentially do before diminishing returns set in. In other words, if it's only possible to achieve this kind of return starting from a very low asset base, then maybe it's not worth one's time. As a compromise, I'm talking about it in a vague way and writing under a pseudonym.)
It took me about six months to a year to "get the hang of it" (develop a number of successful trading strategies and avoid making a lot of beginner mistakes), perhaps aided by the fact that the market was particularly inefficient last year due to a big influx of retail investors, which made the learning curve easier to climb. My trades are usually short to medium term (hours up to a year from entry to exit).
- Become an expert in some corner (industry or asset class) of the market (for example, REITs, mining, shipping, oil & gas, SPACs, distressed assets) so that you can reliably determine, without doing an unreasonable amount of work, whether any given asset in that sector is overvalued or undervalued (relative to where the market is likely to go, not necessarily relative to just "fundamental" or "intrinsic" value, see Addendum below).
- Follow other sector experts (free or paid, SeekingAlpha seems to be a good resource). One problem with this is that while you can often rely on such experts for relative value within the sector that they cover, they have an incentive to overstate how undervalued their own sector is as a whole.
- Follow some generalists who are good at calling out which sectors are currently undervalued, so you can rotate into them in a timely manner.
- Try different strategies with small sizing and ramp up the ones that work. Put some deliberate thought into how quickly to ramp up an initially successful strategy. You can do it too fast and make big losses because the strategy only initially worked by luck, but you can also do it too slow and miss opportunities that are short lived.
- Develop a portfolio of trading strategies familiar to you, that you can pick and choose from depending on current market conditions.
- Manage your risks, keeping in mind potential correlations between different trades/strategies.
- When you buy or sell, try to get some sense of who is on the other side of the trade, and take the trade if it makes sense from this perspective. E.g., it may be a good idea to buy when a bond fund is selling equities they got in a bankruptcy because they're not allow to hold equities.
- Read analyst reports, SeekingAlpha articles, and the like for ideas, and develop and use your judgment of which ideas are likely to be valid and worth acting on.
- One reason returns diminish with increasing AUM is that your trades have bigger impacts on the market, especially if you try to trade small-cap stocks or other illiquid instruments. But this can also be a source of opportunities, as the bigger funds tend to avoid these less liquid instruments as not being worth their time. So look into the least liquid instruments that you can trade without causing excessive market impact.
Note that these are just some of the things that I ended up doing, that I think contributed to my trading performance. I'm not really sure how much it will help someone else to explicitly try to follow these tips. I think the main thing I want to say is that if you're substantially smarter and more rational than the average person, it may be worth checking if stock trading is one of your comparative advantages.
Addendum: Types of value that the market may price into an instrument (now or in the future)
- intrinsic/carry value - present value of expected income/expenses generated by the underlying asset(s)
- liquidation value - value that can be obtained by liquidating the underlying assets (e.g., a company expected to make loses forever if it keeps in business, but can return positive value to shareholders in a liquidation)
- extrinsic/option value - value that comes from offloading left tail risks to debt holders or society and capturing right tail risks (e.g., a stock heading for bankruptcy where shareholders are expected to be wiped out, but still trading at positive price)
- scarcity/coordination value - value that comes from people using the scarcity of an asset for coordination (e.g., gold, Bitcoin)
- involuntary value - value that you involuntarily impute to an asset when you are forced to buy or sell it on the market (e.g., because of a margin call, stock loan recall, or "tap on the shoulder" from risk management)
- arbitrage value - value that comes from being expected to converge in price with another instrument
- lending value - expected income from borrow fees paid by others (i.e., when they short the instrument)
- collateral value - the value of being useful as a collateral (e.g., being more willing to buy/hold an asset at a given price because it's marginable)
- liquidity value - the value of being able to easily exchange the asset for something else
- diversification value - value that comes from price of an asset not being correlated with other assets
- psychological/moral/signaling value - psychic, moral, and/or signaling costs/benefits of owning an asset (e.g., for some, perhaps negative for the fossil fuels industry)