Please notice that the heading here is not “eliminate your emotions”. That would be inhuman. We merely suggest (quite strongly) that you recognise them at the onset – what are the tell-tale signs your body makes when being ruled by any or all of the above and act accordingly. Most important, though, is to understand that the market is made up of people just like you, reacting to the same stimuli in a similar fashion. Thus, if you’re packing, besides having a cup of tea and relaxing, you should expect the market to soon enter panic mode, as well, and act accordingly.
Don’t waste time wondering what to do with the MACD when markets are rampant. Learn to use it on a demo account long before you invest your hard-earned bucks in an uneducated guess. There are innumerous YouTube videos out there on nearly every aspect of market behaviour, how to use a technical indicator and how to read candlestick formations. They’re all free. Don’t let the technology be a hindrance but an aide.
Malcolm Gladwell estimates you need to practice 10,000 hours before becoming an expert in anything. Let’s say you want to be merely proficient and can afford only 2/3 of that. You’re still left with a 2-year learning curve. Now, depending on how serious you are, decide whether you want to set aside 2-years’ worth of living expenses to devote your entire working day to trading or whether you can only afford to spread that out. In short, expect to lose lots before you start to make money regularly, and be prepared to make the effort – that means study, reading and thinking.
Possibly the most overused command in the English language, it becomes even more pertinent in a world as diversified as financial markets; Do you want to trade CFDs, deal in options, futures, invest in shares, trade in forex – day trade, buy-&-hold, high or low volatility, risk and more. If you are normally a risk-averse personality, there is no reason to seek volatility. If you seek bungee locations in every corner of the world, why are you trading ETFs in the short-term?
The difference between gambling and investing is knowledge. Investigate the fundamental components of an asset – a nation’s socio-political conditions, its economic state for forex, a company’s dealings, personnel and behaviour in shares, news for commodities: read, read and read again
Is he regulated? Does he send out too many get-rich-quick mailers? Does he make it seem too easy? In today’s environment, locating the objective policing sites (LeapRate, ForexPeaceArmy…) and reading up on a broker is easy.
It should include the asset, its background, what tools you used to analyse it technically, where you placed what orders and so on. It’s not only for recording what you’ve done – it’s for putting down on paper your thoughts and thereby formulating them in a sensible, logical manner. Define your parameters for success.
Hedge your investments, plan your trades, diversify your portfolio. Trading is not Roulette – you do not place all your coins on a single square. Investments should be hedged to minimise the damage of loss by counteracting it with an investment in a related asset. Portfolios should be diversified to spread the risk and reflect market dynamics in an interconnected cosmos. And planning is at the basis of it all – it’s simply too complex to pull out of your pocket.
Never invest money you cannot afford to lose. Master the 2/10 5/20 rules of thumb (2-5% of your equity in any one trade, no more than 10-20% in all trades combined).
Set objectives and stick to them, whether on a trade-by-trade basis or P/L over a given period. Make sure these are realistic, relative to your experience. And make each loss a win: even a winning position should be examined post-mortem. If you have lost on a position, it only becomes a failure if you fail to learn from it. Where did you go wrong? Where did markets diverge from the expected?