If you want to put your savings to good use and invest it for better purposes? Make sure to minimize investment risks so that you don’t suffer losses.
Planning is the key to start online trading. You will need a good plan to achieve the goals mentioned above. This way, you will avoid rookie mistakes while making the most of available opportunities.
Here is how you can plan to start online trading the smart way.
1. Check Skill Level
You need first to assess your understanding of trading and investment. As a beginner, you will need to start off with paper trading to avoid losing money to newbie mistakes. This will give you confidence and knowledge that will serve you well when you are trading for real.
2. Mental Readiness
Are you mentally prepared to take on the gruelling challenge of trading? You will need full focus and concentration to succeed. That means having enough sleep and being relaxed. If you are upset or distracted, you could end up making a costly mistake and losing much or all of your money.
Inspect the area from where you will be trading. It should be free of distractions and disturbances so that you can focus well.
3. Choose Risk Level
What percentage of your money should you commit to trading? Remember, you could end up losing the money, so you must commit no more than single-digit percentages of your trading portfolio. It is best not to go beyond 5%.
4. Establish Goals
Pay attention to the risk/reward ratio. Committing your hard-earned cash to trade is viable only if the risk/reward ratio is appropriate.
Most traders try their hand at a trade only if the possible profits are at least three times higher than losses. So if the stop loss is $1 for each share, then you should be aiming for a possible profit of $3 per share.
5. Find out What’s Happening
You should always be updated on the market situation. Besides the national market, you should also keep tabs on the global market since it often has strong repercussions. See which way markets are moving and what is the overall mood. You should also check on expert forecasts to get insights into what could happen in the short term and the long term.
6. Trade Preparation
No matter what trading program or system you have deployed, mark minor and major support and resistance on your charts. Prepare alerts so that they give you exit and entry signals. Inspect carefully to be fully certain that you will be able to detect signals both auditory and visual.
7. Establish Exit Rules
Many newbies make one common rookie mistake. They focus on buying but have no exit strategy in place; this can be dangerous.
Traders often refrain from selling when things go south because they don’t want to incur losses. However, you must adopt a mature approach and learn to accept losses. Only then will you be able to curtail and mitigate losses. If you don’t know when to sell at a loss, you will compound your setbacks.
Professional traders often lose a significant percentage of their trades which may even be more than their wins. However, since they know how to manage their portfolio and curtail losses, they can still make profits.
Don’t take losses personally. Just accept them and realize that even pros keep incurring losses all the time, so it’s no big deal.
Before entering a trade, be aware of exits. All trades have at least two possible exits. You must first consider what your stop-loss is if the trade goes wrong. Be sure to write it down. Don’t count mental stops. Second, check out the profit target. Once you attain the goal, sell a part of the position, move the stop loss as appropriate.
8. Entry Rules
You may have noticed that entry rules are mentioned after exit rules. There is a reason for this. If you don’t prioritize exit rules, you could easily incur more losses and lose more money than you make.
The minimum target should be at least three times greater than the stop loss. Entry rules should be worded in easy phrases to have a clear idea of what you want to achieve.
9. Maintain Good Records
Successful and experienced traders are also good at maintaining records. This can help them in many ways. If they won a trade, they would write it down to note how, when and why they won it.
Noting down your observations is extremely important since this is what will help you to learn. Don’t think that you will remember it.
You should peruse your findings regularly and keep introspecting to leverage your experience. Doing so will help you to get the most out of what you learn.
Remember how much money you make at the end of the day is not what matters the most. The key is what you learned. So even if you made a loss, but learned lessons from it, then that is a small price to pay for an invaluable experience. To make that happen, you must take notes, maintain these notes very well and scrutinize them daily at fixed times.
10. Use a Great Money App
You will need a good money app to commit more money to your online trading account. This will help you to maximize your investment portfolio and provide greater returns.
A bigger account balance will mean greater returns, so it is advisable to save as much as possible with a highly rated money app.