Successful share dealing comes more easily to those that have adapted their techniques and trading style to give themselves better odds of deriving a profit. While in many ways trading might feel instinctive, it is only with the right attitude to trading and the appropriated mentality to accessing the markets that traders can expect any pronounced level of success. So what are the tips that traders should look to use to improve their trading fortunes, and what are the small changes every trader can make to deliver more significant trading returns?
Trading shares successfully and for profit is a difficult pursuit, and one that requires extensive effort and legwork to make happen. Like any profession or business, traders need to put in the face time if they want to be successful, and the more energy and time you invest in learning and refining your craft, the better the chances are of a profitable outcome. For those that don’t have deep pockets to fund a learning curve, there are ways of achieving some shortcuts in terms of developing tips and tricks to maximise profits and minimise the potential risks.
While there are no trading rules and you are free to chart your own path, there are nevertheless a number of tried and tested tips and techniques traders can use to maximise their trading impact and to deliver better results from their capital exposure.
Don’t Choke Your Profits
One of the fundamental things any successful trader needs to do is to allow their profits to run on for as long as possible. The natural tendency is for traders to cap positions that are actually delivering a profit because they prematurely feel they are about to reverse, in the process chopping off potential profits and ending a position that could have gone on to deliver much more generous returns. While banking a profit is all fine and well, not banking the maximum profit is the same as creating a loss – it’s essentially money that your research and trading savvy has meant you’re entitled to, and without holding on to recover it, you are doing yourself and your account a disservice. Traders should make sure they never choke their profits, but instead allow money-making positions to run on for as long as they possibly can to maximise advantage.
Cut Out Losses
The other side of the same coin, successful share trading places a degree of importance on cutting out losses as quickly as possible. Investment capital is essentially the stock, or the raw materials of the trader’s business, so it has to be protected at all costs, and traders should always be more easily prepared to close a losing position than a winning one. By default, the natural human instinct seems to function in reverse, with losing positions given more time to improve (presumably because no one likes to admit to themselves they’ve got it wrong). Instead, the best mentality is one that is ruthlessly intolerant of loss-making positions, and deliberate and protracted in profitable positions in order to maximise the distance between the two.
Don’t Get Emotional In Your Trading
Trading needs to be carried out objectively and honestly, and there is no room for excuses when you’re trading for yourself. During times of market ups and downs, it can become quite easily to lose yourself and your normal trading faculties in frustration or delight at the outcome of particular trades. Unfortunately, the markets don’t cushion the landing for those that make rash decisions and take positions they regret, and for those that aren’t trading with a clear head it can become easy to trap yourself into a losing position. Traders need to take measures to distance themselves from their emotions and the rollercoaster that is share trading in order to perform to the best of their ability.
Trade With The Trend
Share positions should always take account of underlying trends, and should be positioned in favour of the trends at all times. Market trends are powerful forces that generally can’t be influenced by a single trader, yet it is market price that determines the value of a position. It is therefore illogical to trade against the trend, unless traders are expecting a reversal in which case it is perhaps safer to give the position a few moments to establish. Early action is to be encouraged, but where it involves trading against the trend traders need to think extremely carefully about this highly risky action. Trading with the trend makes it easier to profit from share positions, so it makes sense for those that want to do well to trade in line with these market pressures.
Research Before You Trade
Arguably the most fundamental tip of all, traders need to research the markets and the companies in which they are trading first and foremost before they even think about risking their capital. Thorough research is the minimum, unless you are prepared to lose your money. Only research makes the difference between gambling on stock market prices and physically trading on them, and those that put in the conscious time and effort to research and understand markets will be all the better traders for it.
The first thing you need to start to do in order to improve your chances of overall success in stock trading is to think about the risks you’re embracing, and ways in which they can be kept to a minimum. Risks are part of the trading puzzle, but keeping them as controlled as possible is critical to building a successful portfolio. You need to plug the leaks before you fill the bath, so make sure you’re not taking on risks that are too significant for the rewards on offer, or that are disproportionate to your trading account. Risk to reward ratios are one way in which this can be realised more effectively, with ratios of 2:1 (in favour of reward) or even 3:1 being most common, depending on your risk appetite.
Lower risks does not necessarily mean lower potential profits – it’s all about conducting the most thorough research and choosing your opportunities wisely to reap maximum reward from minimum risk exposure. Provided you keep risks to a minimum you can help reduce the chances of capital damaging losses, and start to build a solid foundation for your trading success.
Another key behaviour traders have to learn in order to improve their chances is more effective capital management. Capital management is the process of managing and allocating investment capital in order to ensure diversity of risks and earnings, and to enable traders to continue to invest in spite of any market or liquidity difficulties. Without a robust approach to capital management, traders can quickly run into trouble, and many a potential trading career has been extinguished as a result of poor capital management when trading in the markets. Deciding how best you want to apportion your funds depends on the amount of capital you have to invest and the strategies and objective you’ve set yourself, but it’s important to consciously recognise and adhere to your approach.
You should aim to trade a set percentage of your total available capital at any one time, and you should always be prepared to lose the funds with which you trade. While not desirable, total catastrophe can strike in the markets for those that aren’t careful, so managing capital within the trading process and personally, before you decide on an amount with which to trade, is important in preventing financially damaging losses that can have a significant downwards pressure on overall account success.
An often-overlooked way to improve trading results is to consciously try to maximise returns. For those that think this sounds obvious, many traders get so caught up in protecting their capital that they lose sight of the ruthlessness required to really squeeze every drop of profit from a market opportunity. Positions that start to show promise should be exploited with additional investment or with an additional time allowance, in the knowledge that profitable opportunities are difficult to spot. When they do emerge, taking full advantage and pressing for a larger profit every time can have a substantial impact in determining your overall success or otherwise.