Here I give provide some advice as to how best to set yourself up for trading success rather than trading failure.
Many would be traders come to the table without a thorough understanding of the inherent risks involved with trading.
Work Out Your Budget
One of the first important steps is to capitalise your new business. This will involve stumping up a lump of capital to deposit with a broker to start trading with. Given that trading via the use of a Forex strategy, Spread Betting or Binary Options is high risk your budget should be reflective of the level of risk you are prepared to take.
It may be tempting to stick every available penny into your trading account. However you can quickly come unstuck if you take this route. Start off with a small amount and be prepared to lose the lot.
Ideally your trading capital should be only a small part of a wider portfolio. Get used to trading first. You can always up your capital exposure to the markets as gain more experience.
Don’t forget to include your all costs when determining what you need to get started. You should factor into your budget any tools or courses that you take, as well as any strategies or systems you intend to purchase. Some of these will be one off costs while others may be ongoing subscriptions. In both cases it is important that you account for them within your budget.
Find a Solid Provider
There are in existence a myriad of different providers and ways in which you can trade financial markets. Each will have their own particular set of pros and cons so don’t expect your approach to necessarily mirror that of other traders.
The requirements for account opening vary as do the services that are offered. Brokers with low deposit requirements are now widely offered and prove attractive to new traders. While these are often a good starting point, be aware that the features on offer may be limited. You also need to be realistic with your deposit amount so that you can properly balance your risk.
It is instead better to focus on the minimum amount required to trade. A low minimum amount per pip will allow you to balance your risks better. For example you will have greater flexibly when it comes to opening positions and setting your stops.
The important thing is that the platform that you settle on works for you. If you are not happy with what’s on offer then don’t be afraid to change provider.
Create a Trading Plan
Putting together a trading plan may not sound very interesting but it’s imperative to success. Traders need to think like business owners, with the plan the success on which the business is built.
The plan should include all details of your trading. List the budget you are working to, including all costs, the strategies you intend to use and a blueprint for how you actually intend to trade.
At a more granular level you should detail your strategy. What will trigger your entries, your sell points and what will be your risk. This will force you to clarify your approach and provide a reference for your trading activity. It can also keep you away from the markets at times other than specified and impulse decisions.
As with any plan you should refer to it often. It is a solid point of reference that you can use to analyse performance and identify areas where you can improve.
Practice Your Skills
Practice accounts, sometimes called demo accounts are freely available from the majority of brokers these days. Despite this is surprising the number of traders that sidestep them and jump straight to their live account.
Demo accounts are indispensable in allowing you to get familiar with the execution of your strategy. Not only can you learn how to execute the strategy correctly, you can use this time to refine it with no capital risk. By learning to trade your strategy with flawless execution you will help to eliminate any errors.
Many traders approach their trading as if the markets are going to disappear tomorrow. Take the time to practice your strategy and correctly execute your orders. You will of course have to transition to a live account at some point, but you should only do so once you practiced your skills to perfection.
Limit Your Risk
Perhaps the most important lesson for new traders is to learn how to control their losses. This is far more important that having a good trading idea. Risk control is the cornerstone of good trading.
Trading is quite different to investing. A big move against you may end up wiping out your account. Even worse, it could end up costing you money. All this can happen in just seconds if you don’t take the appropriate steps to guard your account.
Even when using a conventional stop loss your money is at risk. Take the following example. You open a long trade on the GBP/USD at $1 per pip with a 30 pip stop loss. A sudden 100 pip fall could see the broker unable to execute your order at the level set. Instead your order is closed at the next available price, costing you $100 rather than the expected $30.