This article was originally targeted for helping traders that frequently over extended themselves, or who just didn’t have the willpower to exit a market at the right time. But then we found that a lot of these safety nets, can also help beginner traders and their transition into the world of trading. So for all traders, experts and beginners alike, we hope you can gain some insights with this article.
Manage the Size of your Trades
After reading that heading, you’re probably thinking ‘Well Duhhh’ but it can be easier to slip up than you think. The potential loss between placing a trade at 0.1 instead of 0.01 can rid that smug attitude right quick. One of the main reasons we Sheppard our students through their first trades, is because of this exact point. Nothing can spoil the beginning of trading like discovering that you lost €80 rather than €.80.
Another point is to spread your trades throughout the day, test the waters and see which markets are working for you. But more importantly, to find which markets to steer clear of.
Who knew a decimal point could cause so much heartbreak- GIF Source
Use a Stop Loss
When thinking Risk Management, setting a ‘Stop Loss’ should be the first thing you consider. For any beginners out there, a Stop Loss is a set limit. Once that limit is reached, you are automatically exited from the trade. You can have it so once you’ve lost a certain amount of money, your trading is finished and you’re pushed out of the market. As for why a stop loss can prove so crucial in Risk Management, it means no matter how bad a market gets, you’ll be out of the market minimising your loss. It also pushes any Human Emotion out of the trade, for instance thoughts such as ‘This Market Will Pick Back Up’ or becoming attached to a trade. It even nullifies any surprises in the market if any unforeseen circumstances occur.
An example of the relationship between entering and setting a stop loss- Image Source
So get into the habit of applying a Stop Loss whenever you start a new trade, it’s one of the healthiest habits of Risk Management you can adopt. A trader known as Tischendorf is an absolute advocate of Stop Losses, and has written a great article on the importance of it.
Trade Markets You Know, Don’t Just Dive Into Cryptos Because It’s In the News
Even as I’m writing this, a small part of me is stewing on the fact a small investment of $100 into Bitcoin in 2010 would have translated to millions today. It almost feels as if I left a winning lotto ticket on the bus accidentally, but in reality it was an opportunity so many overlooked. And of course, I often see in the world of trading…that ‘this new Cryptocurrency is the latest Bitcoin’. And it may or may not be, but if you’re getting into trading to discover the hidden Crypto niche that no one else can see, probability suggests that you’re heading down a bad road, considering just how Volatile Cryptos can be. I feel Nick Leeson comments on Bitcoin are quite fitting.
Trading Forex isn’t an exact science either compared to Crypto, but the volatility levels are Night & Day. So the level of predictability is certainly favouring Forex, my comment on the difference in the two markets would be, if you’re getting into trading for the long run, look into Forex. But I promise you, in several years time there will be a trending market just like Bitcoin that everyone will be jumping on.
Trying to understand why Bitcoin rose by €2000 in 2 weeks- GIF Source
Avoid Volatile Trading Sessions
This note of Volatility follows on here, of course the higher rate of volatility can mean greater profits for you in a shorter time span. But it also translates to losses as well, and fortunately it couldn’t be easier to avoid these volatile times. Economic Calendars show which events are stirring the highest amounts of volatility. Often coinciding with the release of new national or ECB figures, such as Unemployment rates, GDP or CPI.
But if you’re too tempted to avoid this volatile times, be sure to do your homework first, but more importantly Only Risk What You’re Willing To Lose. Stop Losses are an absolute must when markets are acting erratically, having a fail-safe can keep things from getting out of control. CNBC’s article really covers trading with volatility in great detail, worth a read!
Journal To Keep Better Track Of Your Trades
I know it’s a cliche but you really do learn the most from your losses, and analysis of your trials and errors are the foundations of that loss not repeating itself. Even if you feel that you’ll remember the next time, and you’re telling yourself ‘I won’t forget my losses’. I beg to differ, but more importantly Trading provides you an opportunity to become extremely analytical, and you should jump on this chance. There is so much that you can keep track of:
- What Price Did I Exit The Market At?
- Should I have Held Or Exited Earlier
- Am I Positive or Negative in Pips with the Euro or Sterling?
- Am I Prone To Exiting Too Late?
This is just touching the surface of how in depth you can be, Shopify have a short article on the benefits of writing down your findings. It’s a quick and easy read, should check it out! By writing down your trades, you can discover any nasty habits you have with a particular market.
We certainly hope you enjoyed this piece! Be sure to let us know on Social Media, or even send a suggestion our way for our next post, we do try to tailor on content for our students. Happy Trading!
ALPHA Programme – PRO Trader Programme – CRYPTO Programme