Trading different instruments such as forex and commodities is an avenue where you can earn significant profits within a short time. On the downside, the risks involved are also quite high and thus you need not to enter into trading blindly. You need to familiarize yourself with fundamental concepts on financial markets and commit to continuous learning.
Below are key pointers and guidelines which you can adapt to and kick-start your trading undertaking.
1. Set Aside Trading Funds
Before undertaking trading, it’s important to set aside some funds specifically for trading. This is your capital and it should be something which you can afford to lose and still move on with life. Once you set up the capital, don’t invest it all at once on a given line of trade. Instead, only be taking a maximum of 2% of your total capital and lining it for a trade.
Monitor the performance of this trade first before lining up more trades. Thus at any given point in trading, it’s only a total of 2% which should be lined up for trading. Depending on your risk tolerance level, you may increase this percentage higher, though most professional day traders keep it at around 2%.
There is much sense in risking a maximum of 2% at any given time. When you are starting out, you are not yet a pro and thus trading with such low percentage of your capital will not only allow you to take advantage of possible profits but still give you enough time to learn the market dynamics. You also drastically reduce your risks of losing all your capital in a few trades.
2. Allocate Time to your Trading Activities
If you want to hit it big with the financial markets, you must allocate sufficient time to your trading activities. Like any other business, time is needed to give you sufficient opportunity to monitor price movements and make an informed opinion on the likely move of the market prices. This time is also important in catching up with current news, learning new trading strategies, and analyzing the past market performance.
3. Timing is Key
To make a big win, you must be good at making the right moves at just the right moment. You need to actively monitor all the critical market indicators and quickly make the right market move whenever the prices change. This means that you will have to set your goals first, identify what to monitor, and when you will make your market moves. You will use these identified parameters to quickly execute orders whenever your desired parameters interlock with your trading goals.
4. Cut Losses through Limit Orders
Losses are part of trading. You need not to get discouraged if you realize that you made a few losses. Instead, learn from the mistakes and prepare to minimize these losses next time. One way through which professional traders cut their losses is through limit orders. This option, when set, will make the trading software to quickly exit the trading position when your losses reach your selected limit order point. Always set limit loss orders as a way of minimizing risks.
5. Keep Your Emotions at Bay
Trading should be a matter of analysis and logic. There are times when you will be tempted to exit a position or make a new position out of the desire to earn more or even avoid losses. If these actions are not based on logic and derived from proper analysis of the market, you may end up losing much. As it was indicated earlier, it’s wise not to put most of your trading capital in a single trade with the hope of reaping impressive profits. The market trend may reverse and you lose most of your trading capital.
Trading Strategies for Beginners
There are several strategies which you can employ as a beginner and make significant progress in your trading undertakings. Below are the top picks.
This is one of the popular trading strategies employed by professional traders. It is an adrenaline-charged process which demands a high level of concentration and fast-decision making capabilities. Traders who use this strategy keep their eyes glued on the screens noting the slightest price movements.
Traders profit from small price movements. The traders have a specified exit strategy which ensures that they don’t get losses which may cancel out their small cumulative gains. If you choose this strategy you must ensure that you have more cumulative wins and fewer losses for your trades to remain profitable.
A breakout happens when the price starts moving outside the identified resistance range. This trading strategy requires a trader to monitor price movements consistently in order to establish the resistance points and take action when the price moves outside this range. If the price moves above the resistance level, breakout traders usually enter into a long position. A short position is entered when the price breaks below the price barrier. Not all trading instruments are suitable for this trading strategy. Choose instruments which have high liquidity and not extremely volatile.
This trading strategy is based on volumes. The trader monitors the momentum of a given trade and makes their position early before the momentum stops and takes a different direction. This consisted price movement is highly influenced by the volume of trades made. As more entries are made, the momentum increases and reaches a level where the trend almost flattens. It’s at this point that the trader should exit their position before they start registering losses.
This trading strategy is quite risky and may not be suitable for beginners. In fact, it goes against common logic. It involves going against the market trend in the hope that the prices will reverse. The risky part occurs when such prices never reverse. But on the good side, if the prices reverse, the trader who utilized this trading strategy makes a big kill.
5. CFD strategies
The contract for Differences is a trading strategy based on leverage. With this trading strategy, traders can maximize their earning and gain returns multiple times their initial investment capital. While traders stand to profit greatly if the price movements favor them, the converse is also true. Traders stand to lose multiple times their invested capital if the price goes against their position.
It’s possible to learn the ins and outs of trading and slowly progress to a professional trader. Use the above pointers and strategies to make your way through trading and progressively increase your trading profits.