Trading has never been as accessible as it is right now. No longer reserved for finance professionals and the mega-rich, almost anyone can create a free account online and start making trades in minutes. Lots more people are too – a combination of lockdown boredom and extra savings spurred almost 1.8 million Brits to become day traders for the first time during the pandemic.
For many of those newbies, trading will have been a flash in the pan just like lots of other temporary lockdown habits. Some will have seen only slight gains – or worse, significant losses. But you might be one of the few who’s determined to stick it out and achieve long-term success.
If that sounds like you, read up on five principles that will help you become a better trader below.
Learn established trading strategies
Trading strategies are plans that revolve around specific market conditions and price points. There are several well-established trading strategies that it could pay off to know.
Trend trading, for example, involves analysing market momentum, usually over a medium term. Range trading meanwhile focuses on short-term price fluctuations between two levels, while breakout trading means jumping on a trend almost before a period of market change or volatility begins.
Other well-known strategies include reversal, gap and pairs trading, and learning the ropes will help broaden your understanding of markets and trading in general.
Find your market
What will you trade? Many beginners start out by trading forex, which revolves around the conversion of one currency into another. It’s a relatively simple concept to grasp and is incredibly popular, with the UK being the world’s largest forex market even before the pandemic began.
Forex trading can take you far – but gaining experience with different assets and markets will help diversify your portfolio. Getting started in CFD trading for example, which shares some similarities with forex as well as significant differences, could be a smart next step to increasing your trading knowledge and expertise.
Use analytical tools and platforms
Solid market research and analysis is essential in becoming a master trader – especially as you won’t have professional guidance or backing. That means tracking influencing factors such as economic trends, as well as monitoring and predicting their impact on the market in the form of trade and price activity.
Many modern trading apps feature analytical tools for you to customize and use to your advantage. Making this research a consistent habit, almost as if it’s part of your job, will help you build long-term success.
Practice patience and persistence
As in any industry or profession, traders experience high and low points over time. Such fluctuations can be enough to test your nerve and even drive you to quit – especially if you make significant losses. But having the patience and perseverance to ride it out will reward you with personal growth – and potentially greater profit.
Having a balanced approach to risk management is important for limiting damage when a market turns against you. Avoid risking too much on single trades and look for opportunities with positive risk to reward ratios.
Track your progress
Finally, keeping track of the trades you make is a vital way of analysing and remembering what’s worked or not worked for you in the past.
Whether you use a logbook, spreadsheet or something else, record your entry and exit points, motivation for doing so – such as market trends – and the final result. This way you’ll learn from your mistakes and grow as a trader.
Trading is by no means easy. But with knowledge of these principles and a genuine drive for improving, you’ll keep moving closer to your financial dreams.