Ways to Improve Your Online Trading Success
Online trading (or financial market trading) has gained and continues to gain, traction over the last couple of years. This is primarily due to the increase in the ability of global netizens to gain access to the Internet (via mobile devices).
The latest statistics (2016) by Statista note that “there was an estimate of 3.5 billion internet users worldwide… This means about 45 percent of the global population accessed the internet that year.” Also, it is realistic to assume that these figures will keep on growing as the physical network connections keep on increasing. Ergo, more and more people will come online.
What do these figures have to do with financial trading success or failure?
The starting point of any successful trading venture is to partner with a legitimate online trading company. If you open an account with a fraudulent broker, you will lose the deposit that you paid into your trading account. Therefore, as the site www.jonesmutualfraud.com emphasises, it is vital to ensure that you open an account with a genuine broker.
At this juncture, it’s also important to note that it does not matter whether you are a beginner trader or an advanced trader, it is vital to pay attention to opening a trading account with a legitimate online trading company. Entry-level traders are not the only investor-type who make the mistake of thinking a fraudulent company is legit. Expert traders run the risk of becoming complacent and not doing the necessary due diligence on a company before signing up with them.
Further ways to help you trade successfully
Now that we have discussed the vital starting point for trading success, let’s look at a few more tips that you can implement to improve trading success:
Do not trade on emotions
One of the biggest challenges that every trader faces, especially a new trader, is to make trading decisions based on emotions.
For example, if you open a buy trading position on USDGBP, and the trade goes against you, it is normal to get a fright and close the trade when it is on a losing streak; because, you don’t want to lose initial investment. In this case, there are two important factors to note: Not every trade makes a profit. You will make losing trades. Successful trading is not about the individual trade; it’s about the overall profitability figures.
Pre-determine your trading strategy and stick to it
This tip is a precursor to preventing trading on emotions. There are two main trading strategies:
- Short-term: In essence, short-term trading strategies last from opening and closing a trade from a few minutes to a single trading day. It aims to profit from a linked asset’s small, volatile price movements. A typical short-term trading example is day-trading. This is where trading positions are open and closed within a single trading day.
- Long-term: Long-term strategies, on the other hand, are trading tactics that are implemented over a long time period. They aim to ignore an underlying asset’s small price movements and profit from the overall increase or decrease in price. A long-term trading example is that of swing-trading; where trading positions are left open overnight.
Use fundamental and technical analysis
There is no doubt that global, and local, socio-economic and geopolitical events play a major role in the price movements of assets like Forex or commodities. Therefore, it is vital to use both fundamental and technical analysis tools to help you determine the way an asset’s price will move before you enter a trade.
Fundamental analysis is a “method of evaluating [an asset] in an attempt to assess its intrinsic value, by examining related economic, financial, and other qualitative and quantitative factors”
Technical analysis, on the other hand, looks at the historical and current price movements on a graph using tools like the RSI (Relative Strength Indicator) and the Bollinger Bands. These indicators aim to show patterns and trends; thereby, allowing you to determine which way an asset’s price should move.
Reduce your exposure to risk
Successful (or profitable) trading aims to minimise your investment’s exposure to risk. There are two ways to implement this principle:
Two percent rule: Essentially, when applying this rule, you never risk more than 2% of your total equity on a trade. For example, if your total investment is $500, you set a stop loss at $10 when opening a trade. Thus, if the price swings in the opposite direction to your prediction, the trade will automatically close when it reaches $10 below the trade’s opening price.
5/15 rule: In this rule, you only open a maximum of three trades at a time adding up to a total of 15% of your equity. Furthermore, each trade only risks 5% of the 15% at most. For example, if your capital is $600, then your 15% is equal to $75. And, the stop loss on each trade should be set to a maximum of $15 below the trades opening price.
Note:these examples take into account the fact that you are opening a “buy” trade. If you open a “sell” trade, then the stop loss should be set above the opening price.