1. Learn Basics First
If you are a beginner, you have to learn many important aspects of the market. The basics include;
What are the best trading hours?
What makes the financial market fluctuate?
What types of orders are there?
What are the terms used in trading?
The more you know about the market, the healthier your risk profile is. Don’t jump right into the market with no background knowledge of trading.
“Good fortunes is what happens when opportunity meets with planning.” - Thomas Edison
Every trader should have trading plan with a solid structure that can guide them through day-to-day fluctuations in the market. With a good plan, you can mitigate your loss and stay calm if the trade gets volatile. The plan should include profit goals, methodology, as well as risk tolerance strategies. Nearly every mistake traders make is caused either by not having a plan or not following it.
3. Manage Risk
“Rule No. 1: Never lose money. Rule No. 2: Never forget rule number one.” - Warren Buffett
Taking a loss is a part of trading. Never risk too much on any single trade and always use stops. A stop-loss order helps you reduce your losses as it enables you to select price at which your position will be automatically stopped. However, you have to place your stop-loss orders at a ‘safe’ distance from your entry price. If you place them too close you will be stopped out before the market has a chance to move in your favor.
4. Don’t underestimate the market
Every good trader handles a loss. The difference between a successful trading and a failed one is understanding how to handle losses. Whether we choose to accept it or not, losses are integral parts of trading. Always be prepared for market volatility and if the market is not moving your direction, exit any positions to cut loss. This will help traders reduce their losses.
5. Diversify Your Investments
It is important to remember that some assets affect one another, so it is best to diversify between different asset classes (such as stock, commodities, indices etc.), and even within the asset class itself. The logic behind diversity is as old as saying “Don’t put all of your eggs in one basket,” and keeping your investments diverse will also help you manage your losses in case one stock brings a loss.
6. Be patient and disciplined
Trading consistently requires patience, which unfortunately most humans lack, particularly when it comes to money. Attempting to double your account every week is chancy, and doing so increases risk exponentially. Making sustained profits in trading takes time and effort, and there are no shortcuts to becoming a good trader. So once you have your trading plan ready, find the patience to stick to your rules. Patience is not about doing nothing; it’s about doing the right thing at the right time.
7. Control your emotions
“If you cannot control your emotions, you cannot control your money.”- Warren Buffett Sometimes, even experienced professionals with advanced tools are not able to predict market movements, and in such a situation emotions can drive you to take negative actions. Make sure you do not let this happen – without too much emotions involved, you will be making adequate choices. Take your time to understand each one of them.
8. Have entry and exit rules
There is no such thing as the ‘perfect entry and exit’. Stick only to the entry and exit parameters of your plan. If you start thinking ‘maybe I should see if this works’, think again. Maintain discipline and your bottom line will thank you for it. The exit strategy will be based not just on your goals but also on the market trends; this will minimize your losses while you can collect your gains once the specified target is met.
9. Take Partial profits
If you gain and want to trade further, it’s time to take partial profit. Try to book at least 50% profit at your desired level of gain. At the further level, you may book another 25% and later book the rest of the profit. This decreases your risk and at the same time gives you significantly increased profits.
10. Be Knowledgeable of Latest News
The world changes quickly and new events can cause explosive fluctuations in the market. In order to succeed in trading, you need to be up to date with the latest events affecting markets, the latest stock market situation and other things concerning the market. This helps you for example, when a notable event appears on the economic calendar. You may be careful to consider booking, or at least protect profits, and any products you feel might be affected. For short-term traders, it’s important to keep an eye on the markets and any real-time news developments.