Investing and trading your savings online can be an exhilarating yet daunting experience. With so much information at your fingertips, it can be difficult to know what decisions to take and what trading strategies to implement.
If you want to give yourself the best possible chance of maximising the returns from your investments over the long-term you’ll need to have the following four key traits to successful online trading:
Letting profits run and cutting your losses
An innate problem among many novice or amateur financial traders is to hold onto trading positions for too long. On the flip side, human psychology dictates that those novice traders who trade themselves into a profitable position will take a small profit without letting it run its course in fear of the position moving back against them. One way to maximise profitable positions and minimise negative ones, whether you are dabbling in online commodities trading, forex or the stock market, is to implement stop losses and limits. Using trading software, it’s possible to implement predetermined figures that you wish to risk per trade and profit per trade; thus eliminating the human emotion from your investment decisions.
Hedging your trading positions
In forex trading for instance, when trading currency pairs online, investors can protect an existing or predicted trading position from any unanticipated moves against them. Through the use of spot contracts and foreign currency options, traders can secure the right to buy or sell the currency pair they are trading at a specific exchange rate in the future to limit the loss potential of the trade. This skill ensures that, in the event of a trade going in the right direction, you can secure at least a small percentage of your profit if you wish to keep the position and maximise profits if the market continues to move in the direction you expect.
A robust attitude to risk management
Even the very best investors make poor investments. Just ask Warren Buffet, arguably the world’s most successful financial investor, who has made plenty of investments he wished he hadn’t made in the past. You need to adopt the same mindset to your own financial investments. Some won’t turn out as you hope, but how you handle those losses and learn from them are more important than your winning trades. A robust risk management strategy is also essential in order to cope with losing runs. Ensure you are strict with the percentage of your trading funds that you use per trade to ensure your money works as hard as possible for you in the long-term.
An ability to interpret news to make effective investment decisions
Those who have an aptitude to digest and interpret breaking news stories and understand their potential impact on financial markets will stand the best possible chance of making consistent trading profits. For instance, would you have been able to recognise that the recent decline in global oil and commodity prices would lead to a fall in mining and oil stocks within the FTSE 100? This is not something a novice may be able to pick up immediately, but with time and experience of watching the markets and their reaction to latest events, it’s possible to make more dynamic investment decisions accordingly.
Financial investments are not a get-rich-quick scheme; they take time to mature and discipline to get involved in. It takes a level of confidence to take the right investment paths more often than not.