Cut Your Losses
All traders experience losses from time to time, so try not to panic if you make a bad trade. However, think carefully before trying to make back what you’ve lost. It’s easy to fall into the trap of trying to breakeven when you’ve made a loss but, more often than not, this mindset results in your compounding your losses. Instead, accept the odd loss and part and parcel of trading and focus on your long-term profitability, rather than an isolated loss.
Backtest Potential Strategies
Traders use a variety of different strategies when playing the markets but finding the right ones for your needs isn’t always as straightforward as you might think. Before you use a new plan on active markets, be sure to test them against historical data. Using backtesting software is an easy and accurate way to do this. Once you know how the strategy would have worked, you’ll be able to determine its efficacy and decide whether or not to use it going forward.
Diversify Your Portfolio
Diversification can be an effective way to protect your capital. When you invest in stocks and shares or commodities that react differently to market events, you can offset potential losses and, to an extent, secure your capital. Similarly, investing in different companies or making various types of investments prevents you from ‘putting all of your eggs in one basket’ and can reduce the risk of major losses.
Reduce Commissions
Now that you can make trades yourself, without having to use a broker, trading can be much more cost-effective. However, even relatively low brokerage fees can eat away at your profits over time. By shopping around for reputable brokers or platforms, you can ensure that you’re not paying over the odds to make trades. After all, you’ll want to keep every cent of what you earn as a trader.
Show Commercial Awareness
You may not need to react to every piece of news, but it’s vital to be aware of what’s going on in the world if you want to be a successful trader. An environmental disaster, political unrest, or even new legislation can have a major impact on the markets, which means you need to be ready to react when necessary.
Planning Your Investments
As new opportunities come about and existing investments mature, you’ll want to be proactive about managing your trades. By thinking strategically about the level of risk you’re willing to take, you can identify the trading vehicles that are most likely to generate a return over the short, medium, and long-term, and, in doing so, you can maximize your returns in 2021.
This is a contributed post.
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