When it comes to trading, you need to go into it with a pre-defined strategy of what you are going to do. Otherwise, it is very easy to get sidetracked and to chase the shiny trades that will usually not turn out to be very profitable for you.
It takes plenty of practice to become a good trader. You need to be self reflective and continually adapt to changing environments. Here are some tips that hopefully will help you to improve your trading.
Having predefined goals
One of the very first things you need to do when getting into trading is laying out what your goals may be. Without knowing the destination, it can be very difficult to know what steps to take along the way.
These goals need to be clear and quantifiable rather than some vague goal. You need to then select a trading style that is compatible with achieving these goals. There are going to be different risk profiles associated with different types of trading styles.
Your risk tolerance depends on a lot of variables, such as your age and general personality. Some people are more suited to taking on more risk, whereas others play it extremely conservative and are happy to eke out small gains consistently over time.
More conservative people will likely make fewer trades and will become what is called a position trader. Those who are more risk tolerant will take an approach closer to day trading. If you do not match your trading style with your personality, you will likely not perform too well and will be under a lot of stress.
Choosing the right broker
There are countless brokers out there today to choose from. It can be a daunting process trying to narrow down which is the best option for your specific needs. It is important that you do not rush into a decision too quickly.
You should take the time to list out what factors are important for you when it comes to choosing a broker. For example, you may be a high volume trader that wants to have low fees and on costs per trade.
Others may want to have access to certain types of investment instruments or certain types of trading platforms.
By narrowing down your needs and preferences, the process of selecting a broker will be a lot easier. You will be able to trade with peace of mind that you made the right choice and you are getting the most out of your trading experience as possible.
Always stick to your guiding principles
While it is important to be flexible and adaptable when it comes to trading, it is important to have a general guiding philosophy. There are many schools of thought when it comes to trading research and analysis.
There are three rough main camps when it comes to trading methodologies. On one side are those traders who prefer to rely mostly on technical analysis. This is the use of charts and various analytical tools to try and forecast what is going to happen next for a given investment.
On the other side are those who rely more on fundamental analysis. This relies on the likes of changes in the economy, company earnings reports and the likes. Then there is the camp that bends these two different methodologies together into a singular approach.
Always know your entry and exit points
While one of the hardest things about trading is knowing when to enter and when to exit an investment opportunity, there are some things you can do to try stack the odds closer in your favor.
There are always going to be conflicting opinions on entry and exit points. However, you should always make sure that your various forms of analysis are congruent and they come to the same conclusion as to when you should sell and when you should buy.
This eliminates the risk of you making an error and gives you a more comfortable basis from which you can make your trades.
Always know your expectancy
Expectancy is used by traders in order to calculate just how reliable your trading system is in actuality. This involves looking back at your past trades and seeing how many losers and how many winners you had and to what extent they were a win or a loss. You naturally what to be on average making more than you are losing.
You can identify interesting patterns when you take this reflective approach. You can get some key learnings that you can then use to alter your trading approach going forward. You can look at your thought processes behind making given investments and determine why they were successful or why they did not work out so well.
Many traders will use the weekends in order to conduct their analysis. When you take a bit of time away from trading, you can get a better perspective on what approach you need to take going forward.
Many people find it a useful exercise to print out their trading charts and to map out what happened when you made trades at certain points. You should identify if you were making emotional decisions or if they were decisions that were backed up by compelling evidence to make a certain decision.
Keeping your emotions in check
One of the hardest aspects of trading is not getting too emotionally involved in the process. You are trading with your own money is when you are losing money it is easy to get very stressed out. However, if you have a well designed plan that has gotten proven results in the past, then you should stick to the plan and not get reactive.
It is when you get reactive as a trader and try to chase winning trades that you are going to make riskier trades. Most of the time you will end up digging yourself into a deeper hole if this is the case. You need to do what you can to keep your mentions in check and not be afraid to cut your losses when the situation calls for it.
Don’t overcomplicate matters
When it comes to trading there are tons of different instruments you can choose to trade. There are many flashy new products being released by online platforms in which they want people to trade.
People often get caught up in the latest form of hype and try to get involved in markets that they know little about. Therefore, you should always stay in your lane and only trade with what you know and with what you are comfortable with.
Over time, you can develop your knowledge of other types of instruments and then gradually dips your toes into these markets. However, you should never take a blind leap of faith.