How to be a smart trader?

It is very challenging to trade in the financial markets whether it is through CFDs on currencies, shares or commodities. While there are opportunities and rewards, there are also risks. Smart trading with a plan and a strategy in mind and is more complex than simply opening and closing trades. From studying the factors that affect the markets, choosing a good trading plan, and sticking to it is all about being organised, educated and ready to act at the right time. Here is a list of the most popular tips followed by traders.

Educate yourself

The first aspect that an individual should embrace is their ability to learn and expand their skills. The general knowledge of how trading works is essential. Here are a few key areas to focus on:

Market basics

Know how the various markets such as forex, stock, commodities, and indices work. Analysing the factors that can affect these markets and how they connect, will help you become more well-prepared.

Technical analysis

Have a good knowledge on charts, technical analysis indicators, and oscillators. There are different indicators that are commonly used when it comes to predicting trends in the market and they include the Moving Average, Relative strength index, and Bollinger Bands.

Fundamental analysis

This involves understanding and knowing when economic indicators, news on events will be announced or released so you are ready if volatility in the market moves your forex pair or trading instrument. Interest rates, employment reports, and GDP data are highly influential when it comes to trading currencies.

Risk management

To avoid losing your capital there are some principles of risk management you should learn: Know about types of stop orders particularly stop loss, about size of position and risk reward ratio.

Develop a trading plan as a trader

Your trading plan is your blueprint or rather a guide that directs you on how to trade. It should contain information about targets and goals, an assessment of the risks, and the type of trading strategy you will use. Here’s what to include in your plan:

1. Trading goals: Identify your short-term and overall long-term goals. What do you expect? To earn a steady income, gradually accumulate wealth or simply to explore the market as a hobby?
2. Risk tolerance: Evaluate to which extent you are willing to take risks. This will affect the selection of instruments as well as the sizes of your positions.
3. Trading strategies: Another consideration is that you need to describe your chosen strategy – day trading, swing trading, long term or other. All of them imply different abilities and the time needed for their implementation.
4. Entry and exit rules: Develop entry and exit points. This entails the technical and fundamental indicators that you will be using.
5. Risk management rules: Determine how you will be able to control your risk such as using stop loss and defining your maximum risk per trade.

Choose the right broker

Choosing your broker correctly is vital to your success, and here are some guidelines that you should consider when choosing a broker:

• Trading platforms: The broker should provide you with a convenient and efficient platform such as MetaTrader 4 (MT4) or MetaTrader 5 (MT5).

• Fees and spreads: Check out the fees and the spread of different brokers. High costs can greatly affect your profitability, on the other hand lower costs can have the reverse effect.

• Customer Support: Customer support should be responsive and helpful because if you have trouble with your account or with trades, it will be helpful to contact an expert person who will guide you through the process.

It all begins with the Demo Account.

Additionally, it is recommended to use a demo account as this will help you develop the necessary experience in trading without using real money. Many brokers provide their clients with the possibility to open a demo account that mimics the real environment.

• Test your strategies and how effective they are without using actual money.
• Familiarise yourself with the platform which you are going to use for trading.
• Gain confidence by trading and managing positions with virtual money.

A trader need to be informed

The financial markets are affected by many factors such as economic data, geopolitics and overall market or investor sentiment. Staying informed about these factors is crucial for making informed trading decisions.

• Economic calendar: This means that one should monitor an economic calendar and be aware of the dates of relevant market reports and events.
• Financial news: Read business and financial newspapers and magazines to get the latest market news.
• Market analysis: Experts and analysts prepare market analysis reports to help traders.

A trader must have a trading journal

In order to know what you are doing right and the areas that require change, it is advisable to keep a trading journal. Document every trade, the reasons to make the trade and results. Review your journal regularly to:

• Identify patterns and personal behaviours that have influenced the outcomes of your trading.
• Learn from your mistakes: Examine your mistakes and try to find out what could have been done differently.
• Refine strategies: You can always improve your trading strategies and adjust them to better respond to changing market conditions.

Continue learning

Some markets can be extra volatile due to changes in the global economy, which means that your knowledge should also improve and remain updated.

Commit to continuous learning by:

• Reading books and articles: there is a great number of books, articles and websites concerning trading, risk-management, and market analysis.
• Attending webinars and seminars: Attend the courses, webinars or seminars of professionals to get new information and knowledge.
• Joining trading communities: Communicate with other traders in various social networks and relevant groups to exchange stories and get new market ideas and strategies.

A trader must be patient and persistent

Finally, it is important to highlight that trading is not an activity or a job that will lead to immense profits within a short period of time. Takes time, effort, and most of all, consistency. Never give up on and do not be afraid of the short-term losses that you will experience. Ultimately, by concentrating on the long-term process, remaining focused and persistent will help you continue trading and building your confidence.   

Smart trading can therefore be defined as an art that requires education, planning knowledge, discipline, and constant learning. If you follow these tips, you will be able to grasp the dynamics of the financial markets and understand the complexities.

Always bear in mind that trading is a lifelong process and the moment you think you’ve grasped everything you could possibly ever need to know is the moment you stop actively learning. Thus, to be an efficient trader, you need to remain updated and focused, and cultivate a healthy and strong mentality that will drive you to meet your trading goals. In this sense, you will be able to achieve long-term results in the financial markets.

Disclaimer:
This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked in this communication.