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6 Security-Trading Tips for Career Investors

Arif is an entrepreneur who left his steady job at a bank during the pandemic. His businesses include currency trading and freelance writing

If you want to trade for a living, it's important to have a set of best practices and stick with them even when you lose money.

If you want to trade for a living, it's important to have a set of best practices and stick with them even when you lose money.

Trading the financial markets is a risky business. The financial world is riddled with peaks and pitfalls. One would do well to navigate them properly so they won’t be swept away by treacherous currents.

For me, it took five years to truly be consistent in my trading. After many mistakes and losses, I was able to make my first $840 profit in a period of one month. Here are some tips I can spare to perhaps ease your journey toward trading success.

6 Tips and Guidelines for Stock Market Success

  1. Decide on the Kind of Analysis That Suits You
  2. Come Up With a Set of Trading Rules
  3. Manage Your Risk
  4. Trade a Demo Account
  5. Find a Mentor or Trading Partner
  6. Have the Right Trading Psychology

1. Decide on the Kind of Analysis That Suits You

As a trader, you should know the difference between fundamental analysis and technical analysis. If not, don't worry—here are some quick definitions.

Fundamental Analysis

Fundamental analysis is the method of analysis that is based on macroeconomic trends, company earnings, and the general flow of cash from one financial institution to another. It focuses on finding the intrinsic value of a security to determine whether it is overvalued or undervalued. It is more geared towards long-term investing.

Technical Analysis

Technical Analysis is the method that is based on specific mathematical indicators and historical data to determine possible future trends and target prices. This sort of analysis is more suitable for short-term traders.

Which Type of Analysis Is Right for You?

Now, it is up to you to determine which kind of analysis is better suited for your personality. If you are someone who likes reading financial news and analyzing company earnings, then perhaps fundamental analysis is for you.

If you are like me, and you prefer looking at historical data, using indicators, and drawing trend lines, then you may be more of a technical trader.

Take note that no method is better than the other. There are many people out there who make money using each, so it is up to you to decide.

I am more of a technical trader, but I do keep an eye out for major financial news that could move markets drastically in an unexpected manner. It is important to note that during important financial announcements like The Federal Open Market Committee (FOMC), Non-Farm Payrolls (NFP), and US Jobs Reports, your technical analysis tools may be very inefficient in predicting trends.

You can download the FX Street app to get all the latest news in the financial world. Be alert on upcoming news events and make sure you know the time and date they will be announced. Markets usually have a knee-jerk reaction to big news, so be careful!

During these news events, decide whether to act or not. Based on my experience, it is often better to just not do anything. The initial market reactions from news events can be extremely unpredictable, and you probably won’t know why prices move the way they do. It may be better to wait it out and let the markets calm down a bit before placing any new trades.

2. Come Up With a Set of Trading Rules

Your trading success is predicated on your ability to find the right conditions to trade. As a technical trader, I make sure that all my indicators fulfill certain criteria before I make any fresh trades.

For example, if you’re using the relative strength indicator (RSI), pair it with another overbought/oversold indicator like the stochastic oscillator. By doing this, you have a stronger confirmation of a new signal.

When using indicators it is best practice to have two to three different indicators that complement each other. There are hundreds of indicators out there, some tell you the forming of new trend lines, some tell you the continuation of trends, some show overbought and oversold signals, and some are volume indicators. So choose the best ones that fit your criteria.

For me, I prefer using a momentum oscillator with fast and slow settings to predict new trends. I then pair it with an overbought/oversold indicator that helps me time the execution of the trade so that I can hit my target profit as fast as I can. Take note that this does not work every time, so do your research!

If market conditions don't fit any of your criteria at all, then please don't trade. It is better to miss a trade than to get caught in a trade that’s not going your way. Tell yourself that it is okay to not do anything—it is okay to preserve your capital. Let go of the fear of missing out. Stick to your rules if you want to play the long game.

Coming up with trading rules is key.

Coming up with trading rules is key.

3. Manage Your Risk

You will have some floating trades every now and again. The more you practice, the fewer floating trades you will have. But trades that float too largely have the potential to burst your account if your initial capital is not enough to withstand it.

I would recommend an initial capital of at least $5000. This should be enough capital to withstand major market volatility. A healthy initial capital is an important part of risk management.

When trading, the lot size you use per trade should also correspond to the amount of capital in your account. For example:

Initial CapitalLot Size

$5000

0.05

$6000

0.06

$7000

0.07

As you can see, the lot size is always equal to your initial capital divided by 100,000. This ensures that you are not risking too much out of your capital for each trade you make.

Another important aspect of your risk management strategy is your margin level. Your margin level basically shows the health of your trading account in percentage.

I won't go over the actual calculation behind it, but all you need to know is that your margin level should never go below 60%. If this happens, you’re in deep water! It means you’re about to get a margin call.

This happens when your trading account is taking more losses than it can handle, so your broker will prompt you to either top-up your account or you will have to realize all your losses automatically. This is called bursting your account. Therefore, take all the necessary measures to avoid this.

Take note that the more open trades that you have at any one time, the lower your margin level becomes. So, don't place too many trades without closing the other.

4. Trade a Demo Account

I cannot stress the importance of this enough. Trading is a very difficult skill to learn, so why not practice it as much as you can with fake money and no risk?

The market data is pretty much the same as a live account. So it is the best way to learn and try out analyses that you feel could be profitable.

Go crazy! Try out as many combinations of strategies as you want until you feel you found the right one. However, take note that there is no perfect indicator that will work 100% of the time. If there was, everyone and their mothers would be millionaires.

Always backtest strategies against historical data. Record your win/loss ratio and see if you end up with a net profit.

Also, write down some of the mistakes that you make and make sure you don't repeat them. You can keep a trading journal or just write out notes in your notebook. Writing motivational mantras won't hurt either.

I recommend trading a demo account for at least 6 months before even thinking about going live. So, don't quit your day job just yet!

5. Find a Mentor or Trading Partner

Throughout your trading journey, it is important for you to try and network with as many other traders as possible. Join Facebook groups, take part in forums and learn from one another. It is even better if you can meet them in person.

Now, I'm not one to buy online trading courses. Most of them give me scammer vibes and are overly-priced.

Most of the info that these so-called masterclasses give you information that you can find yourself online for free, so stay away from them.

However, it does not mean that there are no successful traders out there who are genuine and are willing to help. Try to find someone who is better at trading than you are. It really helps in steepening your learning curve.

And if you find someone who is a beginner and eager to learn, don't be afraid to give them a few tips yourself.

You must have the right trading mindset to make money consistently.

You must have the right trading mindset to make money consistently.

6. Have the Right Trading Psychology

Last but not least is trading psychology. This part of your trading is in my opinion the most important factor that will determine your trading success.

It really doesn't matter if you have the best indicators in the world, or if you have huge capital to start with. If your mind is not in the right place, you’re on the fast track to failure.

The right psychology is your level of discipline. It is a measure of your capability to stick to your trading rules and not give in to greed or fear. You also have to be "friends" with loss. Know that it is okay to lose sometimes, as long as they are losses that are manageable and you know what to do in the future to prevent them.

No trader is 100% profitable. There will be times when you make huge losses, and in order to conserve your capital, you can’t put any new trades until the conditions are just right. This can be quite demoralizing—trust me, I’ve been there. However, you must know that too many traders have failed due to their eagerness to be rich.

Understand that trading is a marathon, not a 100-meter sprint. Keep yourself calm and relaxed. It's a slow jog to the end.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

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