Trading Basics: Set Your Goals and Expectations

Trading is a skill that involves a lot of research; the returns on your investments can eventually be a life changing sum. However one must also keep in mind trading involves some sort of a gamble and outcome is not always favourable. In fact, if stats are to be believed most traders end up on the losing note due to inadequate research. Trading requires a lot of determination in terms of time, energy, effort, money and risk. For an individual to be a successful trader, one needs to be really lucky or on the other had been dedicated in studying the markets and their trading instruments or in fact ’’preferably both’’. A trader who spends time on observing market sentiments, levels of trade fluctuations and overall market behavior will be able to place his purchase or sales bids with accuracy.

Set Realistic Goals:

Everybody wants to be a millionaire overnight but the fact is very few actually manage to become so in a very short span of time. For a beginner it would be advisable to set targets or goals that you can achieve. Take for instance you start off with a trading investment of $2,000, in terms of your mind set you are very bullish on the instrument of investment. The next step would be when to pull the plug or at what percentage of profitability would you be a seller. This is where you would need to be realistic in your approach.

Ideally a 3% - 4% increase on your investment should be the rate to book your profits.

You might find in some cases that your investment going further beyond your selling price. This might be demoralising to some, but making some profit is definitely better than suffering a loss. As the saying goes ‘’A chicken in hand is better that two in the bush’’.

Learn to Book your Losses:

If it is important to book your profits, it is even more important to make sure you book your loss at an accepted percent of your capital investment. Many traders loose substantial amounts of their investment only due to reluctance to take a loss.

Have you heard of the theory of 2% Loss Rule? An individual should book their loss if their investment has over all depreciated by 2% of the investment value. To understand it, if you have invested $50,000 you should book you loss at an over depreciation of 2% of the $50,000 invested. This would mean if you are suffering a loss of $1,000 on the investment of $50,000 it would be better to sell it off, rather than taking on more losses. You goal as an investor or trader should always be to minimise loss or trade with a predetermined risk baring percentage on investment.

Don’t put all your Eggs in One Basket:

This typically suggests in believing in a mixed portfolio. Take for instance you invest all log stock and barrel in only one instrument. This could earn you handsome returns if the bet goes in your favor, however if it were to go the opposite side you might end up losing beyond recoverable limits. A mixed portfolio as most analysts see is a solution to make some profitability or at least cut even.

Take for instance you place your investment on 10 instruments, 5 of which are loss making and the remaining are profitable. You still manage to leave with some amounts of overall profitability. Even if you are to follow the 3% - 4% profit and 2% loss making rule you still end on a winning note.

Play it Safe:

In terms of stock market terminology, Blue Chips stand out as the best performing companies. These are organisations that have been trading for years, have been constantly profitable, innovative and enjoy investor confidence. For an investor who is looking to play safe it is recommended to start trading in Blue Chip companies only. With your investment parked in these business institutions you are guaranteed return on investment. Take for instant you place your investment in Google, you know the company has a strong foundation and is going nowhere but upwards. The company has always been profitable and you are assured dividends on your investment if you are a long term investor at the same time you will also be assured increase in overall investment value. If you take account of the short term prospective, these instruments are very stable therefore increases the chances of short term profitability. Your goal to become a successful trader is to make some amounts of profits. With investment in instruments that enjoy investor confidence you are guaranteed returns and safety towards your investment value.

It is very important for every trader to expect profitability, but at the same time play it safe and be realistic towards your trading approach. The only way you can end up on a positive note is if you invest time and effort to study market trends and in the process understand the market behavior.