There’s now a broad range of investment markets and asset classes available to traders, few of which have been created equal.
However, despite the increasingly vast and diverse nature of the global financial markets, there remain a handful of universal and deterministic rules that every investor should strive to follow.
We’ve listed some of these rules below, while asking why they’re so important from the perspective of traders.
#1. Understanding Your Market and Setting Goals
Let’s start with the basics; as you cannot hope to be a successful investor unless you comprehend your chosen market and set clearly defined objectives in relation to your trading.
With regards to the former, you’ll need to research your selected market thoroughly, while also using the demo account feature on your trading platform to bridge the gap between theoretical knowledge and practical experience. This, combined with a keen sense of determinism, should help you to trade with the requisite level of comprehension.
As for setting goals, these need to be abundantly clear and linked directly to the amount of capital that you have and your profit objectives.
This way, you can set realistic and achievable goals, which enable you to manage your expectations and consistently spend within your means.
#2. Recognising and Accounting for Risk
There’s no investment vehicle or market that’s completely risk-free, and it’s important to recognise this when becoming a trader.
In fact, you’ll need to appreciate that risk profile that’s inherent to each particular investment, with the forex market known as a volatile space in which traders can profit by speculating on price fluctuations.
Whatever asset you trade, you’ll need to develop an understanding of your own appetite and tolerance for risk, before creating a portfolio and investment strategy that reflects this.
#3. Adhere to Your Strategy and Avoid Timing the Market
On a final note, it’s also important that you stay true to your investment strategy where possible, as this enables you to pursue consistent gains and utilise automation to create a more efficient methodology.
By sticking as closely as possible to a consistent trading strategy, you can also adopt a more disciplined approach and minimise the risk posed by emotive or knee-jerk trading over time.
This also negates the temptation to ‘time’ the market, which refers to the process of buying and selling investments in a way of maximising returns.
Sure, this is the ideal scenario for any investor, but becoming fixated on such an objective can cause indecision and completely ignores the unpredictable nature of the market.