While there isn’t one secret tip to successful trading that will allow you to become a millionaire overnight, there are definitely a few general rules that should be followed before you start trading any kind of asset with real money. Instead of looking for one important note to follow when trading for the first time, it’s important to pull together a group of separate guidelines as a solid base for your future trades. Let’s take a look at some of the main rules that you should follow before you end up making a huge mistake.
1. Create a Specific Plan for Your Trades
The first thing you’ll want to do before you make any trade is have a specific plan. There are plenty of traders who buy an asset without having any real exit strategy, and this is the kind of activity you should avoid at all costs. Using a trading plan allows you to use proper money management, which means you won’t end up losing it all on one trade. To make sure that you’ve outlined the right plan before you get started, make sure that you have done plenty of backtesting on how this strategy would have faired in the past.
2. Remove Your Emotions from the Equation
Emotional traders always lose because they end up making every trade in a panic. The key to the game is to buy low and sell high, which means you never want to make a trade while you’re in a panic. This is much more difficult than it sounds, but it’s become much easier in the age of advanced technology. One of the best ways to take your emotions out of the equation is to use a stop-loss. This will allow you to limit the amount of money you can lose on a single trade.
3. Treat it Like a Business
If you’re going to be able to beat the market, then you’ll need to be able to beat the other traders out there. The only way to make sure you’re able to stay on the right side of the trades is to read and learn more than the other traders. You cannot treat this as a hobby if you want to be successful, and you’ll probably end up losing a lot of money if you don’t have the dedication it takes to succeed. You should basically view yourself as a small business owner if you intend to turn a profit.
4. Risk Only What You Can Afford to Lose
The main reason that you should only risk what you can afford to lose is that there’s no such thing as a “sure bet”. You can never really predict what’s going to happen next, and you definitely won’t be turning a profit on every trade you make. You’ll have winners and losers, but you need to make sure that the winners outnumber the losers at the end of the day. There’s a good reason that many traders consider diversification as the key to any safe portfolio.
5. Know When to Stop
If you’ve found that you’re unable to turn a profit with your trade plans in the past, then perhaps it’s time to try something else. Whether you can’t deal with the stress or you just can’t seem to stick to your original gameplan, you should never be afraid to step away from the markets. Not everyone is able to deal with the amount of volatility that can be found in certain markets, especially if you’re also trying to deal with problems in other areas of your life. Always remember to be smart when it comes to knowing yourself and whether or not you should continue with a certain trading strategy.