The stock market is where shares of publicly listed companies are traded. There are a variety of different ways you can trade stocks, such as with the use of a Contract for Difference (CFD). Through CFD trading, traders can speculate on the price of an asset, without actually having ownership of it. Traders can buy and sell CFDs in the hope to gain a profit from both rising and falling global markets.
To find out more information on how you can trade successfully in the stock market, no matter what method you choose, we’ll explore five top tips to help you become a successful trader.
Use a trading plan
A trading plan is a written set of rules, which specify a trader’s entry, exit, and money and risk management criteria, for every purchase they make. Modern day technology makes testing trading ideas more accessible before you risk any of your capital, such as using free demo trading accounts or with a strategy known as back testing.
Back testing provides you with the opportunity to try out your trading method, with the help of historical data, to determine if it’s viable. Once back testing shows good results on said plan, it can then be used to help guide a successful trade. The idea is to stick strictly to the plan, as making trades outside of what you’ve tried and tested, even if they turn out to be winners, is considered poor strategy.
Approach trading as though it’s a business, not a hobby
One of the best ways to become a successful trader is by approaching trading as a full or part-time business, and not as though it’s a hobby or your job. This is because, as a hobby, there’s no true commitment to learning, and as a job, it could become frustrating as you may not get a paid regularly.
Much like a business, trading can cause you to incur losses, uncertainty, risk and even stress. To overcome this, much like a business owner, you should research extensively to create a strategy and maximise your trading potential.
More often than not, you can also set up demo accounts, as previously mentioned, so you can trade while you learn – without having to risk your capital.
Technology is your friend
Not only does modern day technology allow back testing to gather data and test your strategies, but it also allows traders to access charting platforms, with a huge variety of ways to view and analyse the market.
On top of this, you can use your smartphone to get market updates on the go – monitoring trades anywhere. Access to the high-speed internet gives traders an opportunity to stay up to date with current events which could affect their investments, as they happen.
Develop a method based on facts
Time, research and study, are the best ways to develop a trading method that works for you. Creating a trading plan is hard work, and with many trading scammers out there on the internet, it’s important you dedicate the time to learn, gather information and do plenty of fact-based research, before taking your position on the market.
You should also be aware of all the different factors that could affect the markets, such as politics, news events, economic trends, and even the weather. The market is ever-changing and constantly shifting, so learning about what’s going on in the world. Keeping up to date with the past and current market trends, and remaining focused, are the best ways to sharpen your instincts.
Protect your trading capital
Once you have enough money to fund a trading account, it’s important you’re careful not to take any unnecessary risks. Remember protecting your trading capital does not mean you’ll never experience a loss — it just means that you’re doing everything you can to preserve your trading business.
Also, you can use risk management tools, such as a stop loss. This is an order of predetermined amount, that a trader is willing to risk with each trade. The stop loss can be a set amount, or as a percentage, and this limits the trader’s exposure during that particular trade. This not only limits risk, should you incur a loss, but it can also help to ease some of the stress of trading.
Armed with this wealth of information, why not check out the stock exchange and set up a demo account to begin your investment journey?