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There has been a big surge of online trading in the past few years. However, most beginners still struggle to gain a foothold.
If you search online for something like “successful trading tips” all you’ll find is lots of sales material. Most of that is just distracting information. If you are new to trading, you need real, actionable advice. In this post, that’s what you’ll find.
To be successful in online trading, you need to understand an important set of “rules” that you will guide you toward success. The rules that follow are from a prominent UK online trading site. Following these rules consistently will significantly improve your odds of making it in this field.
Rule Number 1: Always Use a Trading Plan
A trading plan is a set of rules that will regulate a trader’s entry and exit from the market. Your trading plan will also dictate how you will manage your bankroll.
Most traders these days test a trading plan before they risk any real money. To test your trading plan, you can back test it. This means that you apply your trading ideas to historical data. Or you can use a demo trading platform where you can simulate trading without risking real money.
Rule Number 2: Treat Trading Like a Business
To be successful in online trading, you need to consider it a full- or part-time job. If you think of it only as a hobby with no real commitment on your part, you probably won’t experience much success.
As a trader, you are effectively a small business owner. Therefore, you’ll have all the advantages and disadvantages that this level of commitment brings.
Rule Number 3: Use Technology to Your Advantage
Online trading is competitive. Therefore, you will need to make use of all the help the technology can give you. Nowadays, top online trading platforms provide helpful charting programs. These will help you to analyze the markets.
For example, you can get regular updates on your smartphone regardless of where you are. Technology can significantly improve your performance, so don’t underestimate it.
Rule Number 4: Protect Your Trading Capital
Saving capital to trade is difficult for most people. Therefore, it is essential that you protect your bankroll by avoiding unnecessary risks.
However, every trader, even the most successful ones, loses trades sometimes. That’s just part of the business.
Rule Number 5: Become a Student of the Markets
Traders need to dedicate time to educate themselves regularly. What’s more, learning online trading is a lifelong process.
Moreover, the markets don’t exist in a vacuum. Therefore, you need to be aware of what is happening in the world and how these events are affecting the markets. To that end, you need a reliable source of information such as the Financial Times.
Rule Number 6: Risk Only What You Can Afford to Lose
Only trade capital that you can afford to lose. In other words, be prepared to lose all the money you have in your trading account and still get on with your life. Losing lots of money is never a pleasant experience. However, it’s even worse if you are losing money that you shouldn’t have put at risk.
Rule Number 7: Develop a Trading Methodology Based on Facts
It is essential that you create a strategy and follow it consistently. Accept the fact that there aren’t any strategies that will deliver millions in a week. What’s more, try to keep your emotions out of the way.
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Additionally, don’t be in a hurry to make money. After all, you’re going to be learning a new career. It takes time. First you need to study. Then you need to gain experience in the field. After a while, if you keep at it consistently, you will succeed.
Rule Number 8: Always Use a Stop Loss
Have a strategy to limit your risk when things aren’t going your way. For instance, place a stop loss on your trades. This will ensure that you don’t get overexposed when the market is moving against you. A stop loss can also minimize your emotional involvement. That’s because you will know that whatever happens you will only lose a certain amount of money on any given trade.
Rule Number 9: Know When to Stop Trading
There are two reasons to stop trading: When you have an ineffective trading plan or if you are an ineffective trader.
You have an ineffective trading plan if you have much higher losses than you anticipated in historical testing. You can resolve this problem by reviewing everything you do. It doesn’t mean you need to stop your online trading business.
An ineffective trader is someone who is unable to follow his or her own trading plan. This can happen for a number of different reasons. Perhaps the trader has external stress. Or the trader might not be taking enough time to trade thoughtfully and carefully. Poor trading habits can also play a part.
If you find that you’re not in peak condition for trading, consider resolving your other problems first. Then you can start trading again when you can give your full attention to it.
Rule Number 10: Keep Online Trading in Perspective
Always remember the bigger picture when trading.
Set realistic goals to help you keep your online trading in perspective. Accept that you will lose lose on trades from time to time. Therefore, focus on your cumulative profits so that you can accept your wins and losses as part of your online trading business.
This will help you to keep your emotions in check and make you a more efficient trader in the long run.