It’s safe to assume that if you’re trading online, you want to maximize your profits. Of course, that’s easier said than done. While there are plenty of online tools that can help you succeed, trading online also requires that you carefully set up (and execute) a trading plan and – perhaps most importantly – know your limit.
Here, we’ll look at five tips to help you become a successful online trader.
Develop a Trading Plan
The first step in becoming a successful online trader is setting up a trading plan. This will allow you to identify the parameters of your ideal trade and make executing trades easier. Because your trading plan is a decision-making tool that you’ll use to guide all of your trading activity, you’ll need to be thoughtful in putting it together.
Make sure you consider your motivation for trading, the time you have available to trade, your attitude towards risk, your capital and your trading goals. Your trading plan should also help inform your trading strategy, which covers your entry and exit criteria.
Take Advantage of Technology
With today’s technology, it’s easier than ever to explore and test trading ideas and view and analyse the markets.
Online trading platforms give traders – at all levels – access to tools, charts, reports, indicators and historical data and high-speed internet connections allow real-time market updates and the ability to react instantly to changes. With a charting platform, you can also backtest your trading strategy against historical data. This allows you to mitigate risk and potentially avoid a financial loss.
Study the Markets
To be a successful trader, you must always remain a student. This begins with understanding the foundation of trading – economics – but also requires that you explore the intricacies and nuances of individual markets.
By studying the markets and understanding how the world economy and politics play a role, your decisions will become more instinctive and proactive as opposed to just reactive.
There are dozens of resources to help you continue your education in trading. Books, seminars, forums, tutorials and online articles are all easily accessible and inexpensive if not free. People – of course – are also great teachers. By surrounding yourself with online traders, you increase your chances of learning something new. For new traders, you could find a mentor who could help you gain a fundamental understanding of the different markets.
Know When to Stop
A successful trader knows when to stop trading, whether it be because of an ineffective trading plan or an inability to follow the said trading plan.
In the first instance, you could experience greater losses than historical data predicted for any number of reasons. After all, the markets can be volatile. The important thing is that – as a trader – you remain businesslike and unemotional like an FX robot. If you find yourself unable to remain businesslike and unemotional and are tempted to deviate from your trading plan, you should stop trading to prevent loss.
Diversify Your Portfolio
As we mentioned, if you’re trading online, you’re keen to maximize profits. One of the best ways to generate returns is to diversify your portfolio and always look for markets that are moving. After all, stagnant markets make it difficult to make money.
With online trading platforms, it’s easy to look across all markets, including commodities, equities and stocks. What’s more, by diversifying your portfolio, you can employ more than one trading strategy against several assets at the same time.
Now that trading is available online, more people than ever are able to participate in the worlds’ markets. While there’s no fool-proof way to guarantee profits, traders who stay up-to-date on market news and trends, have a diverse portfolio, know when to walk away (or at least take a break) and who stick to a thoughtful plan are certainly on the road to success.