Trading on the stock market is not easy. A saying among traders goes, "If you end up with zero in your first year of trading, you're good!" Successful trading requires knowledge and experience. Over time, you acquire certain behaviors that make trading more successful. In this article, we will go over 5 important behaviors for successful trading.
Take profit & stop loss - set the exit before your trade!
A strategy is very important in trading! One of the most important parts of a trading strategy is setting take profit and stop loss. Especially in very volatile stock markets, the market can fluctuate strongly. A position can quickly slip into the loss zone, or the entire trend can reverse.
Especially when trading with the help of chart analysis, take profit and stop loss can be very helpful. In combination with chart analysis, a stop loss helps to hedge against a change in the current trend. A stop loss is usually placed under important supports, because when this support is broken, the chart picture changes and the risk of more losses is increased. A stop loss can be important not only in trading, but also in long-term investing.
Also a take profit can be important and secure profits. Take-profits are more commonly used in swing trading and day trading. A take profit is usually set at significant resistance or just before it, for example at an all-time high.
Take-profit and stop-loss are very helpful especially in the beginnings of trading and can contain losses and secure profits. They help to limit the danger caused by fear and greed. Many know the feeling when a stock goes up and then greed comes out in you, "Maybe it will go up another 100%!?" And this is exactly where traders often make a big mistake at the beginning of their career! A clear strategy with fixed take profits can help here. Another possibility is to raise the stop loss, so that if the stock turns, you still have a certain profit.
Your position size is adjusted to your total margin!
The position size of a trade plays a major role in trading with leverage, such as CFD trading. It is an important part of the trading strategy and prevents you from getting into the trouble of a margin call unexpectedly. A margin call is the nightmare of CFD trading. The deposited money (margin) on the account is not enough and in case of larger losses, the positions are simply closed at a loss.
To prevent this from happening, it is important never to have the entire margin invested. You should only invest small amounts and rather have several smaller trading positions at the same time. A large part of the capital remains unused and is, so to speak, a buffer, should you temporarily get into the loss zone. How big this buffer is depends on the traded CFDs and how high the leverage is. With higher leverage and more volatile assets, you should tend to have a larger buffer.
Trade markets in which you know your way around!
Every asset class behaves differently. Commodities have different influencing factors than currencies, and these in turn have different influencing factors than stocks. In trading, it is important to know what you are doing. This also means that you know the relevant influencing factors and can evaluate them. That is why you should only trade markets that you know and are comfortable with. For example, commodity markets are very special and very challenging. Forex trading also needs to be practiced. It is not for nothing that there are many traders who only trade Forex or only trade commodities.
So you should have the necessary knowledge about stocks, forex, commodities, or other markets. Which market is the right one, you can not say so sweepingly. If you already have a lot to do with commodities professionally, it is obvious to trade with commodities. Of course, you can also teach yourself the missing knowledge. Therefore, it can be useful to try out the different assets and markets and see where you get the best results.
Know your psychology and feel confident trading!
Psychology plays an important role in trading. Not only the psychology of the markets is important. You should also be able to assess your personal psyche and have it under control. This is also a question of discipline. Only those who have discipline can be successful in trading. This means sticking to your strategy and not giving in to emotions.
The biggest enemies in trading are fear and greed. If the price rises, you want more and more. One becomes greedy! If the price falls, you are afraid to lose even more or you want to get back the lost money quickly. Then you increase the stake at the low point, although it might be better to accept the losses and close the position. Because in trading it is completely normal if 7 out of 10 trades go wrong. The 3 successful trades are enough to be profitable overall.
Having your emotions under control takes a lot of practice. In the beginning, everyone will make similar mistakes. This is completely normal. It is important not to lose too much money at this stage. Practice makes perfect.
Big Picture - Don't forget the bigger time frames!
In principle, trading takes place in smaller time frames than long-term investing. Nevertheless, it is also important in trading not to lose sight of the big picture. This refers on the one hand to the market sentiment and on the other hand to the indicators of the chart technique.
In trading, it is important what makes the market tick at the moment. What is the market sentiment? Is fear currently predominant or is there euphoria in the market? In very fearful markets, for example, it is better to take profits quickly. If there is euphoria in the market, it can make sense to hold long positions longer. In this case, the market sentiment must be constantly monitored, ideally via appropriate news channels.
When analyzing charts, it is also valuable to take a look at the weekly chart or daily chart. Many traders often stay only in the smaller time frame, such as the hourly chart or the 5-minute chart. However, a basic rule of chart analysis is that markets always move in trends and are subject to a primary trend. This primary trend is a long-term trend that lasts for several weeks or even months. This provides the framework in which the price moves in the smaller time units. Therefore, it is important not to lose sight of the big picture.