Spreading of Risks – The Smart Investment Tool

The declining of world markets is a long gone affair now. Times have changed so should be your investment strategies. Money invested in currency futures, market shares, mutual funds, and other investment products can help you achieve your financial goals. Earning good money through stock investment and currency futures depend on how you strategize your plans and how you actually implement them. If you are beginners or even if you are experts, do get registered at an online brokerage platform to be guided and steered by market experts so that you leave no stone unturned to achieve what you expect. Besides getting tips, you can have easy access to the latest market news and relevant information. A subscription will let you receive significant information in your inbox of your email account. And you need not pay extra to be a member. Such a share trading platform has in its databank top stock brokers who have years of experience behind them. So, you get doubly benefited. You may even avail the facilities of opening a free trading account; of course, stock brokers charge an amount as fee to handle your transactions. It depends whether the fee is based per transaction or on an annual basis.

Unlike any sector, there are a number of myths related to the stocks market. Most traders become victims of these myths only to go against their expectation levels. The stock investment decisions of many traders are steered by such myths and by rumors. The most followed mantra related to the myths are buying stocks and holding them for the long term. Another is the high risks associated with short term trading and hence stay away from the same. Both the statements are no doubt true to some extent but it is market fluctuations that drive the movement of stocks. Risk is a part of all investments and what matters is managing the risks. How well you manage your risk again depends on your market knowledge, interest, research capabilities, and time invested. A blend of all these factors will no doubt help you achieve what you have aspired from the stocks market.

The secret to proper investing whether it is in currency futures or market shares lies in scheduling your activities well before you actually invest. It may start with making a list of the most active stocks, going into the details of every stock to find out if the particular company has maintained consistent growth over the years, reading stocks market news, currency news, considering the tips suggested by experts from your online share trading platform, and other factors. Choosing potential stocks and managing the risks thus becomes an easy affair. Gaining is then certain. Spreading investments across different market shares, both short term and long term, also pays.

Your expertise of picking stocks that reflect the broad market indexes is not a one day affair. It is possible with experience, with regular investment, and with the learning that you have gained from mistakes.

How to Start in the World of Trading

Trading the markets at times can be one of the most daunting tasks to the most experienced trader. The diversity of technical and fundamental information in addition to the nuances of the profession can get to the best of traders. One can only imagine the apprehension of new comers when they are faced with the challenges of trying to understand the market they are interested in, let alone the technicalities involved.

In this article I attempt to lessen the frustration for new comers by providing a simple guide that will surely make your journey a bit easier and help you set proper expectations.

First I would like to welcome you into the exciting world of trading alongside my colleagues and congratulate you for making the decision to take control of your own investments. You have indeed taken a step in the right direction for financial independence. But, do be ware that this journey is no walk in the park. It will take diligence, tenacity and years (yes years) to begin to understand yourself, then the market.

At this stage what you need to do is educate yourself prior to performing any trades. This will help you build good foundation instead of bad habits as you practice.

First, you need to determine whether you are more of a technical trader or a fundamental trader (if you don’t know the difference, add this topic to your research list). For the remainder of the article I will focus on the technical approach (where my expertise lies).

To be a good technical trader you need to understand the tools available to you and then understand correct application of each tool. These tools include trend indicators, volatility indicators, volume indicators, and momentum indicators. Each has its own unique way of use and interpretation. There are also more exotic types of technical indicators that you will most likely encounter during your studies. I recommend focusing on the basic indicators at first, then graduate to the more complex.

Trading is more psychology than it is a trading methodology. You may have a 100% successful system, but you will fail miserably if you do not have the correct psychology and discipline to follow it through. It is more often the case that fear and greed will get the best of you and make you either exit the market too early or enter the market too late.

Once you understand the different types of indicators, you will need to educate yourself on proper trading psychology. This will help you to take control of your emotions and accept the losses that will arise during your trading activity. In addition, this will help you to be more disciplined and stick to your trading plan and avoid fear and greed getting the best of you.

Once you have educated your self in the two topics above, make an initial determination of what type of trader you wish to be – a scalper, a swing trader, a position trader, or an investor? If you don’t know the difference between these, then add this point to your list of research.

Once you know what type of trader you want to be and you have the basic understanding of technical indicators and a grasp of how to control your emotions, you need to move to money management. Money management is what makes or breaks a system along with discipline and proper use of technical indicators.

There are several money management techniques, research this topic further and make a determination as to which method suites you best. There is no one correct way of doing this, but all money management techniques have similar themes or commonalties that could be labeled as “pillars” of money management; so make sure you obey these “pillars” in whichever technique you use.

Money management, in general, helps you mechanically follow your trade and avoid the fear of loss and the greed for profit.

Now, with solid understanding of technical indicators, good grasp of psychology of trading, and a money management technique, begin to apply what you have just learned (all three disciplines). You will be surprised with your performance. Just keep at it and you will eventually succeed.

Next, create a trading system that suites your trading style and risk profile. Start trading your system on a demo account for at least a year before you move into real money. The reason I say this is because you will most likely adjust your system several times before it is usable in the real world. Your goal at this stage is not to make money in demo; you should be focused on discipline, technique and adjusting your strategy. Once you have these three down, money will follow.

The steps I outlined above can be performed out of sequence mentioned above as long as you do all of them.

Some important points to consider:

1) There is no a “Holy Grail” system that will be perfect 100% of the time; don’t look for a black box system that will do the thinking for you and give you buy/sell signals. You will spend a lot of money on these systems before you realize that no such perfect system exists.

2) The success of any system depends 50% on proper money management, 40% discipline of the trader, and 10% on the technical aspect (i.e. strategy).

3) Try to minimize hopping systems. Create one and try to be the best at it. It is ok to modify it to reflect market changes, but avoid changing whole methodology too often. This will help you to learn the nuances of your system and market behavior in light of your system

4) Any system with a success rate of 50% or higher with solid money management technique will make you money (other may even argue that a system with lesser success rate but top notch money management technique will be successful and I agree with that statement too. This highlights the importance of money management).

5) The market is dynamic and so should your strategy or methodology be. You should formulate a basket of strategies that are used in different market conditions (don’t know what market conditions are? add this point to your research list).

6) When creating your basket of strategies, keep them simple; do not over complicate them to avoid “Analysis Paralysis.”

7) Do not trade on anticipation, only facts.

8) Try not to catch tops and bottoms, you will be burned; instead, go with the flow and follow the trend once it is established.

9) The life cycle of a new trader takes approximately 5-10 years from beginner to a successful trader, and it will depend on your commitment and discipline as to how long it will take you!

10) The phases you go through your trading cycle are: learner, demo practitioner, real money trader with losses, real money trader with breakeven, real money trader with small profit, real money trader with good profit.

I have deliberately left some points vague to prompt you to perform your own research and begin to build your own repertoire of knowledge.