The financial market has emerged as a popular means of not only investing money passively but also to make a full-fledged career out of it. Day-by-day you see more people opting for the path of stock trading as their vocation.
However, the markets are only as stable as the investors who participate in it, and as far as history shows, when it comes to money, we are very much capable of making rash decisions. These rash decisions often lead to losses, and in extreme cases, even bankruptcy.
It isn’t for nothing that asset managers are in such high demand, who handle investments for risk-averse participants and earn them a return by applying their specialized skill set and knowledge of the market.
The best part is that it doesn’t take a fancy degree from an Ivy League college to make it in the financial jungle. Inculcating a few constructive habits in your lifestyle can lead you to prudent investments and higher returns.
1. Stay Humble
They say there always comes a time when the student becomes the master, and the master becomes the student. Do yourself a favor and apply this to any other sphere in life but the stock market!
No matter how many years you’ve spent in the market, never let overconfidence get the better of you. Yes, as time passes, you get familiar with the quirks and movements of a particular market, but the stock market is a dynamic force influenced heavily by changes in almost every sphere of life, be it technology, politics, or even the environment.
Considering how fast-paced advancements are in these aspects, the stock market can go from a placid lake to a raging tornado in a matter of minutes.
2. Always Be A Student
Now that we’ve established that you’re never going to be above the market, it also needs to be said that you’re not always at the mercy of its whims. The most successful traders swear by this concept of always being on the lookout for learning new stuff.
Be it technological advancements in trading, or a new financial instrument, work up an appetite for new information, read or listen about it, and try to inculcate the relevant ones in your trading plan.
3. Trading Plan
Someone rightly said, “Failing to plan is planning to fail.” Enter the thicket of financial markets armed with a plan that lists your goals, the means of achieving them, and most importantly, how much risk you’re willing to take, given your current financial situation.
Shooting blindly in the air will not land you in a profitable place. A meticulous plan will make you focus on the right kinds of stocks and the right exit strategy to optimize your gains.
“Practice makes a man perfect” is a cliche, but then it’s also true. Like any other vocation, trading stocks is also a skill, and like any other skill, it requires hours and hours of practice.
Thankfully, you can now use dozens of stock market simulators with real prices to trade virtual cash and get the hang of how the market works. Also, you can apply the concept of backtesting, wherein you can apply a new trading plan to historical prices to confirm whether it holds true or fails.
5. Be Tech-Savvy
One of the key reasons for the emergence of stock markets is that they’re easily accessible to everyone, thanks to new-age technology. The markets nowadays are heavily dependent on technology to conduct orders and calculate precise movements in prices by each nanosecond.
Moreover, there are brilliant tools for traders to keep track of their portfolio, to get stock updates and recommendations. Algorithmic trading has been one of the breakthroughs of this century and has completely revolutionized the trading field. In order to conquer the markets, you’ll have to get used to the technological ammo at your disposal.
6. Risk Evaluation
The Achilles heel of a good trader is often their incapability to balance the risk quotient while trading. Risk evaluation is one of the most crucial steps in being a successful trader. You need to calculate the amount of risk you’re willing to take and be in the know of risk-minimizing tools such as stop losses, etc.
The first and foremost thing to make a profit in the market is to stay afloat in it, and that won’t be possible if you aren’t willing to protecting your invested capital and are solely focusing on profits.
7. Cull The Data From The Rumours
Word of mouth spreads like a prairie fire in the financial world. In a place where rumors galore, an astute trader would be able to separate genuine information from straight-up baloney.
One of the techniques to do this is to put in the pieces and try to align the news with past performance and behavior of the firm (or even an executive of the firm) in question to see whether it is probable or not and make trades based on that information.
8. Acquire Chart Reading Skills
Charts represent a rudimentary technical analysis, but being adept at reading one can result in you making the right moves at the right time. There are a variety of charts available for your perusal, but you don’t need to know how to interpret all of them.
First, figure out which chart suits your trading strategy, then proceed on to extrapolating trends from them. Different sectors or firms might require different charts for the best results. Tradingview is an online community of traders which specializes in using charts for trading and also allows innovation of new, better charts.
9. Know When To Quit
An optimal exit strategy is a must if you want to earn profits. Taking trades personally usually ends up in catastrophes. This skill becomes even more essential to recognize early on which trades are gonna lead to huge losses so that you can take damage control measures in time.
10. Treat Trading Like A Business
Flexible working hours, lack of superior authority, working from the comforts of your home, and all other perks of being a stock trader can make you take this job for granted. Don’t. Instead, treat it like any other job. Make a workstation at home, wear your suits, and do whatever you need to make yourself believe that you need to perform at a high level or you’ll be fired.
Trading may seem like a simple game, but to excel at that in a sea of traders requires grit and rigor. You need to prepare yourself mentally for the bumps ahead, while also keeping yourself up to date to have the edge over your fellow traders.