With online trading becoming an increasingly popular phenomenon, plenty of novice investors are flocking to the global markets in the hopes of making a quick profit. However, online trading is a complex and demanding endeavor, and to be successful in the long run you must have an effective and comprehensive strategy in place. In light of this, here are some foundational tips to help you develop your own winning strategy.

Research

As a trader, you will need to have a good deal of information on each investment that you make, in order to ensure that you are not simply gambling your money away by going into investments blind. Conducting effective and extensive research will help you to gain an insight into the factors which influences the market price of any given asset, as well as how it may perform in the future.

Taking the forex market as an example, if you were to invest in the GBP/EUR pairing, then you would need to research the factors which influence the value of each currency. In most instances, this would include looking at the UK and EU economies, as well as the current political occurrences in each, then speculating on which currency will rise in value and which will fall.

Risk Management

Another essential part of your trading strategy will be risk management, or how you minimize the risk of each trade. At the most basic level, you should not risk more money than you can afford to lose on any given trade. It is also important to use logic rather than emotion to make trades, as ‘gut feelings’ are, in the majority of cases, completely wrong.

You should also factor in your own level of risk tolerance, or how much risk you are willing to take on when trying to make a profit. Different investors have different risk tolerances, but novice investors should probably stick to safer investments to start with, and stay fairly conservative to avoid major shocks when trading.

Look to the Long Term

Your mindset is undoubtedly one of the most important parts of your overall strategy. For one, knowing/accepting that losses are a natural part of trading will help you to erase any emotions felt from losing trades.

You also need to remember that trading is not a ‘get rich quick’ activity, but a long-term game in which you will need patience and experience to be successful. To experienced/successful traders, trading can be a very lucrative activity, but it takes time (and a lot of failed trades) to build a successful and consistently profitable portfolio, so you will need to ensure that your overall strategy remains adaptable and flexible.

These form some of the key considerations you should make when creating your trading strategy. Each trader is different, and so each trading strategy will be different, but it is crucial that you get the basics right in order to form a strategy that works for you. Once you have a good strategy in place, there is every chance you will see trading success (in the long run). 

 

Published by Arina Smith