Dos, don’ts and doughnuts of trading
Topics covered in this article:
This week I have compiled a list of my favourite do and don’ts for amateur traders from over the years. While my strategy will change, the trading “commandments” I live by will always remain the same. I try to remember them as often as possible.
Knowledge is power
Or scientia potentia est in Latin. This well-known phrase by Sir Francis Bacon could not be more true when it comes to trading. Trading is beset with terminology and it is important beginners learn what these terms mean and what role they play in trading. An online trading course will help you get to grips with the basics of trading and an experienced teacher will be able to answer your questions in a classroom or trading chatroom.
Be cool
Do you understand your emotional connection with money? Whether it’s earning, losing or even talking about it, the subject of money can elicit a range of responses. It is important to recognise this and avoid making decisions once emotion has taken over. If you feel emotionally-vested in a particular trade, leave it, grab a doughnut and come back to it at a later time.
Understand fees
The word fee sounds like free, except it is the very opposite. Do you know your overnight fees from your exit fees? When choosing an investment platform or broker, make sure you understand the fee structure before you start. If you are using a fund manager or advisor, make sure you understand how much they charge before you deposit funds. Fees massively vary so it is worth doing your research and finding the most competitive for your particular needs.
Be realistic about profit
Do not believe the hype – you probably will not be able to buy an island in the Bahamas any day soon. It is crucial to have realistic expectations when it comes to the amount of profit you can expect to make. Without this, you run the risk of opening yourself up to overexposure and erratic trading.
Risk management, risk management, risk management
In my view, this is the most important. Risk management will reduce loss, overexposure and help your chances of profitability. Take advantage of risk management tools such as Stop Loss, which will automatically close a position when it hits a predefined amount of loss. In the same vein, set a Take Profit limit which will close when it hits a certain level of profit, leaving you to cash out or reinvest.
Hedging and diversifying your portfolio will make you less susceptible to great swings in the markets. If crypto falls sharply, your investment in one of the major indices will help offset those losses.
It is important to understand the strategies of risk management and find one that suits you. An online trading course will help you understand risk and implement a strategy with help from a knowledgeable and experienced teacher.