Online traders need to be able to manage their emotions and keep thinking long term when difficult times tempt them to run for the exit. In this article we have looked, with the help of the experts, at 5 essential tips to be successful as an online trader.
Buying a financial asset like a stock is really easy. The difficult and challenging part is to pick those assets that will perform for us. This is where most people are losing money in online trading. Trading require knowledge, practise and also other skills that need to be learned. For this reason is important that you take the time to find the right online broker, the right trading platform and also that you try out strategies without risking too much capital. It is also important that you only invest money that you are prepared to lose otherwise the pressure will have a negative effect on your trading activity.
- Check your emotions at the door
“Success in investing doesn’t correlate with IQ … you need to be able to control those instincts that get other people into trouble when trading’ This quote is from Ethan Rowe, chairman of TopTradingPlatforms.co.uk, who is a leading site in the UK as far as trading platforms and online brokers are concerned. Rowe is referring here to traders that are capable of letting their heads and not their guts drive their trading decisions. It is a fact that trading decisions taken by emotions have ruined the majority of beginners’ traders. Below you will find other important trading tips that will help achieving long-term success.
- Pick companies, not ticker symbols
When trading on stocks it is sometimes possible to forget that behind every financial asset there is an actual business. Try to avoid stock picking becoming a very abstract concept. When you are buying a share you are becoming a part of that company: for this reason it is really important that you have done the homework first to understand what are in reality the opportunity of success for that company in the future. If you are not sure it means that most probably other investors will feel the same with the result that the shares are not going to increase significantly but will rather decrease.
Surely taking a decision is not easy as you will come across a huge amount of information as you going through potential financial assets to buy. But making an educated guess will put you already in a much better position than just guessing: if you know how the company operates, the place in the overall industry, the competitors, long terms plans than you already have very good information on which you can make a decision upon.
- Plan ahead for panicky times
All traders will have good and bad days. It is very important to avoid taking huge decisions in the heat of the moment. This will lead to the classic trading disaster which is buying high and selling low. It is important to take time to consider things without rushing into big decisions when things are not going in the direction hoped. To avoid emotions take over you it is also a good idea to write a strategy which will define:
Why I’m buying: set the parameters that have made you acquire that financial asset and the opportunities you see for the future. Write down the expectations and the metrics you will use to judge the success of the trade. List also the potential challenges you might be facing that might have to be treated as a temporary setback.
What would make me sell: sometimes you just need to get out of a trade. If this is something you have defined in advance this will probably be a good decision. What you need to avoid is to go out of a trade just because you are panicking in the moment.
- Build up positions gradually
Do not rush into things. Trading takes time and as a beginner you need to learn by making mistakes. And mistakes must be accepted. In order to do that without burning all your capital you need to start slow and try out all the different demos that are offered by online brokers for free. Once you have tested and set your strategy you will have a lot less risks and you will be in the right position to take advantage of the right trading opportunities that will arise.
- Avoid trading overactivity
If you are implementing a long term strategy than you need to give the company time to prove his potentials. It is enough to check how a company is doing every quarter as keeping a constant eye on the scoreboard could lead to overreacting to short-term events. In this case you will be focusing on the share price instead of the long term potential of the financial asset.
Generally, everytime you are trading and you see a sharp price movement try to find out what has caused that event. This will give you a lot more ammunitions to decide if the event is just short-term or if there won’t be a recovery. Only after that you can take a decision on holding or exiting a position. Surely if you are trading with a long term success this is much easier than if you are doing day trading but also with the latter you should use technical tools and charts that will give you a some good indications on how long the trend is likely to last. Being calm is also a very important part of this process and you will acquire this by practising so make sure you use plenty of time to try your strategies without risking your capital (ie. using demos).