6 min read
When deciding on what to trade or invest in, there are many trading options to choose from: Crypto currencies, Stocks, Forex, FX Options, ETFs and so on. Naturally, each instrument is different and many traders prefer to focus on certain instruments only. This approach may be quite beneficial as it allows traders to concentrate on the exact assets they trade the most and polish their approach. However, such an approach prevents traders from diversifying their portfolio, which is one of the crucial steps for a working risk-management strategy.
Regardless of your preferences, there are universal rules that apply to absolutely every asset imaginable. Keeping these four points in mind may help you enhance your trading skills and approach.
The asset prices don’t change on their own – everything happens for a reason. There are many factors that influence the market. Major events, like the start of COVID-19 pandemic or the US elections may cause uncertainty and sharp changes on pretty much any trading instrument, while less global events may have an influence on particular markets or assets only.
Following the news is not as difficult as it may seem. There are many sources that aggregate economic news and even provide forecasts for asset price change. It does not mean that you should blindly follow their predictions, but being on top of the most up-to-date information helps a lot. In case checking many external sources is not for you, you may use the economic calendar right in the IQ Option traderoom and see the important news there.
Analyzing charts by using technical indicators is another way to decide on the trading approach one will be exercising. Indicators help to evaluate the asset’s past performance and make a prediction based on the existing data. The advantage of using indicators is that they are equally useful on any instrument. However, since indicators rely on the previous price changes, their signals are not always 100% accurate and past performance should not be considered as an indicator of future performance. Traders need to remember that and combine indicators with fundamental analysis to make a more educated decision.
The indicators a trader uses may depend on the approach they prefer, however, in most cases, the usage of some of the basic indicators is enough (for instance, RSI, MA, Stochastic, Awesome Oscillator and so on).
Trading plan: deciding on the strategy
No matter how much experience you have and no matter if you are a Forex adept or a Stocks amateur, you need to develop a trading plan. It has been said before, but without a detailed trading strategy, there is a very slim chance of consistent improvement. If your intention is not entertainment, but actual outcome, it is necessary to decide on what you will be trading, how you will analyze it, what the investment will be like and what is the risk management approach. Using a guide for building a trading strategy could come in handy.
Speaking of a risk management approach – this is what might keep you from overtrading, getting upset and letting emotions do the trading for you. It is the set of rules that you create for yourself to follow. A risk management technique is usually mapped out before the trading process is started, when the trader is calm and thinks rationally.
Sticking to these rules is the key factor in preserving the initial trading capital and managing any losses. A risk management approach is universally important for any kind of trading, on any asset, at any moment.
What do you think of these four components? They are universally applicable for any asset and following them will help a trader enhance their experience regardless of their preferences.