6 Principles Should You Follow When Getting Into Trading

6 Principles Should You Follow When Getting Into Trading

Sep 11, 2023
3 minutes

When people first get into trading, they can easily get sucked into a maelstrom of peculiar terminology and promises of making the big bucks, all mixed up with a tangible feeling that you might lose everything on a bad bet. However, in reality, trading is just like anything else in life. It requires discipline, the ability to avoid shiny objects, and, most of all, patience. If you are new to the game and want to make money the right way, this post is for you. We will explore six principles you should put into practice when trading that will ensure a slow but steady progression to financial security.

Develop A Solid Trading Plan

Countless online trading plans promise you a fortune if you follow them to the letter. However, it is easy to get carried away and attempt to implement a variety of techniques or, even worse, to chance to tack before you have begun at all to understand the nuances involved. Moreover, the plans you utilize shouldn't stray away from your personal beliefs. For instance, many Muslims will avoid trading altogether because they believe it to be Haram. However, by taking this stance, they miss out on the amazing fortunes trading can create if they just do a bit of research on Islamic trading accounts, which avoids the usual pitfalls that could make trading Haram (i.e., investing in these stocks, commodities, or currencies does not go against Islamic principles). Nevertheless, regardless of the religious aspect of things, it's prudent to select a few strategies that you believe will be appropriate for your style. 

Study The Markets Thoroughly

As with the fourth tip in this post, professional traders make it part of their job to study the various markets in which they are trading. So, if you are involved with Forex, you should immerse yourself regularly into the world of currencies and see what sorts of patterns are occurring that could sway your choices. The same is true regarding other types of security, but the way you do so might differ. For instance, short-term traders will make use of what is known as technical analysis, which is the study of charts and how historical data could influence future events. Conversely, those with a longer-term outlook and who trade in company shares will use fundamental analyses that investigate the inner workings of a security like a stock and see where they might place a winning trade.

Maintain Composure

Trading is inherently a dispassionate form of art, and in order to succeed, you must take this to heart. As soon as you let emotion sway your choices, you will have begun the descent down a slippery slope that can be incredibly challenging to climb out of. Emotions muddy the thought process, and while you might see the occasional win by selecting based on your heart or a gut instinct, these wins will be wiped out over time by the losses emotion can inflict.

Stay Up-To-Date With News

News can move markets. In some instances, it is the actual breaking story rather than the substance that can make or break a security. An excellent recent example is the Chinese government banning the use of iPhones among its government employees. At the news, Apple stock tanked by around $200 billion and caused many investors to panic. However, when you dig a little deeper and look at the numbers, you will find that it is still a solid company. In fact, many long-term traders used the opportunity to load up on the shares at a discount! The point is to keep an eye on what is happening around the world and how it might impact the securities or commodities you trade. They say knowledge is power, and there is no tool in a trader's toolbox more powerful than having a deep knowledge of the world around them.

Don't Chase After Losses

At its core, trading is somewhat akin to gambling. Although you can stack the odds towards you and have some control over the outcome, you are still essentially gambling that you have made a winning trade. This is perfectly fine since many things in life are as such, but as with all forms of gambling, chasing after losses is a recipe for disaster, especially when you bear in mind that you will have times you're winning and times you aren't. Therefore, sometimes, it might be best to simply walk away and regroup for another day.

Set Realistic Expectations

With the advent of financial influencers that have infested the world of social media, it is easy to get carried away believing you will make millions. While some people do make a lot of money, you need to be realistic to avoid disenchantment when you inevitably don't fall into that category. But don't worry, while gains might appear to be slow, the power of compounding interest combined with time means you can reach pretty substantial goals when paired with consistency.

Trading is a great way to increase your wealth relatively easily. As long as you aren't fooled by the snake oil out there and understand the need for patience and consistency, you can walk away with a hefty nest egg that keeps you in comfort for the rest of your life.