10 Helpful Tips to Improve Your Trading
When you first make enter the world of financial trading, a few minutes searching online for tips on how to make profits might get you overwhelmed. You will come across lots of tips, all of which seem pretty assuring. However, if you’re getting all this information at the same time, chances are high that it might do you more harm than good. Most of the time, beginners simply want to learn how to set up their trades, so they can make money, and avoid losing all of their investment in one swipe.
To succeed, there are some rules that you will need to read, understand and remember like your daily morning prayers. These are tips that have worked for all types of investors in the past, irrespective of the size of their trading war chest.
Here are a list of trading strategies and trading rules that work which should guide you and help you succeed in earning amazing returns from your investments.
Have a Trading Plan or Trading Rule
This is the foundation of trading. Your plan is a set of rules that will guide you throughout your life in financial trading. It stipulates how you enter or exit a position and your procedure for fund management. Planning might be a time-consuming task, but in the long run, it will be well worth your while.
Riding on the success of technology today, you can try out an idea before you put your money on it. A common technique that you can use is backtesting, where you use your ideas on past data to see whether your plan is effective. This will also give you an idea of how viable the logic behind your plan is.
If you try out the plan and yield good results, you can try it in the real market. The main idea here is to respect and stick to your plan. Doing anything outside this plan is risky even if it brings good results and will affect whatever results your plan might have already yielded.
Treat Trading Like a Business
To succeed in trading, you have to perceive your trades as your full-time job, not a hobby. You must show commitment to learn and become a better trader tomorrow than you were today. Trading might be expensive. There will be expenses, you will have to deal with risks, stress, and uncertainty. There might be taxes levied on your profits. From the moment you invest in financial trading, you should see yourself as a small business person. To realize the utmost potential of your business, you must have a clear-cut strategy, and always research before you make a move.
Trading is pure competition. You must always assume that the entity sitting on the flip side of the trade you are trying to cash in on, is making the best use of technology to beat you at your position. There are different platforms available at the moment that you can use to analyze different market positions.
Always make sure you backtest an idea before you risk your money. This will save you from frustration, stress and will save your account from unnecessary losses. At the moment you can get lots of updates straight to your phone, so you are always ahead of the game. You can monitor the market wherever you are in the world. Invest in the high-speed internet to increase the yield potential of your trade.
Protect Your Trading Capital
Saving money for your trading account might be difficult, and in most cases, it takes a lot of time. When you lose it, it might take you an even longer time to raise that money. You, therefore, have to be very careful about this account. Protect your account. This does not mean not making losses. All financial traders will make some losses at some point. By protecting your account, we mean to avoid the unnecessary risky behavior.
Learn from the Markets
Financial trading is more like continuing education. Each day in the market you learn new things. Most of the time, you will be using prior knowledge to get into trading positions in new markets or frontiers. Therefore, the learning process is more of a lifetime learning process.
With research, you will have information on useful facts, trends and even learn to read and interpret economic reports. Stay focused and be observant. There is so much that you will learn this way. Reading the economic reports and understanding them will go a long way in helping you perfect your trades.
The markets are often affected by world politics, economics, events, even things like the weather. This is a dynamic market, and things are always shifting in response to different stimuli. The more you understand historical events and how these affect the current events in the market, the better placed you will be to take advantage of the market when similar events happen in the future.
Don’t Risk What You Can’t Afford to Lose
We have mentioned earlier that funding your trading account can be difficult. Before you start using real cash, you need to make sure that all the money in your account is expendable. If this is not the case, you should keep saving until you get there.
It is common sense that the money in your account should be specifically for trading, and not for any other reason like paying for your rent, or tuition for the kids. Do not make the mistake of borrowing money from one of your expenditure accounts, in the hope that you will return it back. When it comes to financial trading, there is always the risk of losing everything. Therefore, do not risk money that you cannot afford to lose.
Develop a Trading Methodology
Coming up with a reliable trading mechanism might not be easy, but it is worth your time and effort in the long run. There are a lot of trading scams that are peddled all over the internet these days. Whatever the case, use facts to build your own mechanism. Do not throw caution to the wind and hope things will work out.
At the same time, do not be in a hurry to learn. Take your time, read and understand the information you come across online. Treat this as a career path. You have to start from somewhere, a school, for example, get a degree and so forth. The same applies to trading. You must research well to build the foundation of your mechanism.
Use a Stop Loss
What is a stop loss? This is a preset risk level that you are comfortable with, in every single trade. You can either have it as a percentage of your trade or a given dollar sum. When set in place, it limits your exposure to loss in every position you enter. The problem with a stop loss is that it might make your trades boring because you are aware you will lose some money in each trade.
Do not ignore a stop loss, even if you are winning. When you exit a position with a stop loss, even if you have lost the position, you will still have made a wise decision. If this loss is within the acceptable range in your trading plan, you will have made a wise choice. Ideally, you should try and exit all your positions at a profit, though this is not always the case all the time. A stop-loss simply limits your risk exposure.
Know When to Stop
Most people quit trading because of two reasons; either they are ineffective, or their trading plan is ineffective. With an ineffective trading plan, you will be making more losses than you had forecasted during historical testing. There could be lots of reasons for this, including market volatility, changing elements within the market and so forth. Through all this, you need to detach emotion from trading.
Take a step back and reevaluate your plan. Make a few changes here and there, or simply come up with a new plan altogether. If your plan is not effective, this is something that can be fixed, not that it is the end of your trading foray.
An ineffective trader, on the other hand, is someone who cannot follow the trading plan they have come up with. This can be caused by different reasons. In case you are not able to trade well for personal reasons, consider taking a break to deal with those issues, then come back when you are ready to trade without any distractions. Deal with personal or health concerns first, then resume trading with a clear conscience.
Stay in Perspective
Whenever you are trading, you should never lose sight of the big picture. A losing trade is not the end of the world, it is normal. At the same time, a winning trade is a step in the right direction, not your one-way ticket to riches.
What makes a big difference, in the long run, is the aggregate profits you make over the trading period. In financial trading, wins and losses go hand in hand. You simply strive to make more wins than losses. Be excited when you make a major win, there is nothing wrong with that. However, do not be so naïve as to assume you will never lose.
Realistic goal setting is key to staying in perspective whenever you are trading online. If you have a small trading account, do not expect to make humongous earnings at once. Simply work with what you have and build your stake over time. For example, a 5% return on a $5,000 account is very different from a 5% yield on a $5,000,000 account.
Discipline and Trading Psychology
To succeed in the financial markets, you must master some skills and traits. You need to read and understand the fundamentals of the company you are investing in, and accurately determine how a stock will move based on trends over a period of time. While these analytical skills are important, you have to keep your emotion out of business and learn to be disciplined – that is the psychology of trading. These two skills will help you move mountains.
You must be in the right mindset whenever you are trading online. More often you will need to make a split-second decision to get in or out of a position. It all comes down to the kind of trading mindset you have. In a split second, you can make or lose a lot of money. This is also where discipline comes in. You should be disciplined enough to stick by your trading pattern, especially when you master the art of identifying losses or profit makers in the market. Never allow your emotions to get in your way.
Expert traders barely get scared when they get unimpressive news about the market or specific stock. The obvious reaction would be to liquidate holdings in that particular counter or cash out to avoid taking further risks. This makes it easier for the traders to avoid prolonged losses. At the same time, they might also forego profits.
You have to understand how fear manifests. It is a normal reaction to anything that you consider a threat, and in financial trading, a threat to your profits. Where possible, try and put a value on fear. You need to know what you are afraid of and why.
When you identify this in good time, you will be able to anticipate certain movements in the market, and how to respond to them. This is also helpful when getting into certain positions in the market. Once you can get past the emotional aspect of fear, you can trade like a pro. Dealing with fear is not easy. It might take a while, but for your investment portfolio, being in control will be the best thing you ever did.
Don’t Be Greedy
Ever heard of the saying pigs get slaughtered? It is very common in financial markets. It simply refers to greedy traders who hold onto their winning positions for a very long time so that they can milk as much as possible from it. This kind of greed often affects your profits because there is a high risk of the market flipping on you in an instant, losing everything in the process.
It is not easy to overcome greed, especially since you are in this to make some money. It is a natural human predisposition to try and become better or earn just a little more than you already have. You must learn how to recognize this and build your trading plan around rational decision making.
Learn, understand and recognize the importance of these trading principles, and how they gel with one another, and you should be able to create a robust financial trading profile. This is not gambling, it is sheer hard work, determination, patience, and discipline. If you follow these rules, you should not have a difficult time succeeding in this highly competitive arena.