Top five tips for trading success

Published by on 26 October 2011.
Last updated on 26 October 2011

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With the global markets in free-fall, the last few weeks have been particularly gruelling for the world's financial sector.

With an ever-increasing number of people looking to take matters into their own hands by learning to navigate the markets themselves, here are some tips for trading success:

1. Know when to cut your losses

Regardless of how much experience you've got, or how much money you've previously made, anyone is capable of making a bad call, and a key part of being a successful trader is learning how to recognise a mistake and having the conviction to shut down a trade that's losing.

Interestingly, although trading is viewed as a male-dominated arena, women often make better traders than men, partly because of their ability to close down a losing trade before too much damage is done.

Men, on the other hand, tend to view winning and being right as a means to cement their masculinity, whereas having to cut their losses would be a sure sign of weakness. It is this male pride which makes it harder to admit defeat, causing them to back and even add to losing trades.

How to successfully play the stockmarket

2. Trading is NOT investing

Whether you're looking to invest in a stock for a number of years, or quickly jump in and out of the currency markets, it's important to recognise the differences between trading and investing.

The main distinction is time. Investors hold their stock for a period of months or years, whereas traders jump in and out of trades very quickly – within, days, hours, and even minutes.

Due to this, investors and traders look at different indicators to help them identify which markets to place their money in. Investors rely mostly on fundamental analysis - a method of creating financial forecasts by using historical and current data. Traders, on the other hand, typically use charts to identify short-term patterns.

You can be both a successful trader and a successful investor, but never on the same position – if you start to interchange the two, you will lose money.

3. Stick to your plan

If you've done your research and placed an informed trade, don't be scared to stick to your plan.

If you've placed a long trade with the view of closing at the end of the week but the price starts to fall a couple of hours in, don't let yourself panic and immediately shut the position down. The markets are always subject to fluctuations, and small negative movements can be expected, often being part of a larger cycle.

Unless something devastating and unexpected happens forcing you to cut your losses, have confidence in your predictions and don't give up at the first sign of trouble.

4. Keep calm under pressure

The idea that only high-end City slickers make good traders is quite frankly a misguided one. However, whilst anybody can learn how to trade, there are certain personality types that take to it more naturally.

One of the most important characteristics a trader can have is the ability to keep calm under pressure. Trading is often fast-paced, and there can be large sums of money at stake, so it's most definitely not for the faint-hearted!

For anyone looking to move into trading, discipline is key. The best traders are those who are able to listen to advice and instructions, and learn from their mistakes.

Most importantly, however, you have to be committed to learning and practising your skills over a period of time. Unless you're very lucky, you can't expect to make a million overnight!

5. Knowledge is power

With the endless jargon, confusing terms and complex stats that accompany the stock and currency markets, it is easy to see why new traders often feel overwhelmed.

Before you start trading, it's important that you begin by familiarising yourself with the markets you're looking to trade on, making sure that you have a working knowledge of their usual trends and cycles.

When you start your trading career, remember that the most valuable commodity you can have is information.

Greg Secker is the founder and CEO of trader coaching company Knowledge to Action

This aricle was written for our sister website Money Observer

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