If you want to trade in financial markets...
...it’s important to put a strategy in place
So here are our...
...top five tips on how you could improve your trading skills
First, you might want to decide...
...what kind of markets you want to trade
Whether that’s foreign exchange markets...
...indices, commodities, well known individual stocks...
...or a combination of all of them
Then decide how long to hold your positions
Are you a day trader?
A swing trader holding for a few days?
Or a position trader...
...holding for weeks, months, and perhaps even longer?
This could help your approach to market analysis
For example...
...if you're looking for the next big swing in the market...
...over the next few weeks...
...perhaps even months...
...you probably don’t want to spend too much time...
...looking at a five minute chart of what’s been going on today
And of course conversely...
...if you’re a day trader...
...your time could probably be better spent...
...looking at the shorter term charts...
...rather than the longer term big picture
Managing risk...
...is a key component of trading...
...so at the outset...
...identify how much you are willing to lose...
...and don't deviate from it
Here at Capital.com...
...we recommend that you should first trade...
...on our demo account
Learn how to use the platform...
...by trading fictional sums...
...before you start trading with your own real money
Most people have a day job...
...and have to fit their trading around that
For instance if you’re in Europe...
...that means trading in evenings...
...when the US markets are open
Of course with any trading plan...
...it’s important to think about a profit target...
...and determine a stop loss in advance
We’ve produced a video on how to set a stop loss...
...which you can link to in the description below
Remember you should never trade with more money...
...than you can afford to lose
Markets trend over all sorts of time frames...
...up, down and sideways
So there are always opportunities to trade wisely...
...to try to profit regardless of the market’s direction
For an example of an extreme trend...
...you only have to look at a commodity...
...we're all familiar with...
...oil
Since April 2020...
...oil prices have been on a wild ride
Oil prices...
...fell ultimately turning negative...
...for the first time in our history
Plummeting to almost unthinkable negative levels...
...forcing producers to pay firms and investors...
...to take it off their hands and store it
However since then oil prices have surged...
...moving higher than pre-pandemic levels
Day-in and day-out...
...the exploration crews...
...nomads of the industry travel the country...
...in search of other potential oil deposits
Everybody knows how to make money when asset prices rise...
...but as oil shows...
...good trades can even be made...
...with a falling market price
This is known as short selling...
...;ooking to profit from a fall in the market
When short selling to open the trade...
...you sell first...
...and look to buy back at some point in the future
If you end up buying back lower...
...then clearly your short makes a profit
Of course if the market rallies...
...and you end up buying back higher then where you sold...
...you make a loss
For exmaple if you sold short oil at $40 a barrel...
...and then bought back at $30...
...you would make a profit on the trade
Of course, if you bought back at say $50 a barrel...
...after selling short at $40...
...then you would make a loss
Most people have a problem following trends...
...and try to pick peaks and troughs...
...believing they can outsmart and outplay the market
But trends can persist much longer than we expect
Take two of the top tech stocks today
Over the course of the past five years...
...Apple’s stock price has increased by more than 500%
But even that pales in comparison to Tesla
Lots of people have tried to call the top of the market...
...for these businesses and have lost out
However all trends do come to an end eventually...
...a good example of this is Peloton
A top performing stock at the start of the pandemic...
...Its stock price fell dramatically throughout 2021
Managing risk is key to any trading strategy
Research shows that most people's trading losses...
...are much bigger than their trading profits
So keeping losses to a manageable amount...
...whatever that might be for your own risk profile...
...would be considered to be an important part...
...of the overall trading strategy
You should create a stop loss system in order to set...
...a threshold at which you will admit you got it wrong
Let's look at gold...
...in November 2021...
...you may have thought that gold’s price...
...was going to move much higher...
...and so decided to buy in $1,860
However by placing a stop loss...
...at let’s say, $1,840...
...you would be able to limit your losses
You might have been disappointed...
...that it didn’t make a profit...
...but the price fell as low as $1,770 in December...
...by setting a stop loss...
...you would have managed your risk
Experienced traders...
...understand the importance of managing risk
Whenever they open a trade...
...they know when to exit for a manageable loss
Our next step is to keep calm and trade on
This is because of FOMO...
...the fear of missing out, the enemy of many a trader
Traders often see a market move and think...
...if they don't jump in now...
...then they’re going to miss the potential opportunity
More experienced traders...
...know that if a potential opportunity...
...does not fit their risk profile...
...then they will pass...
...and wait for the next trade
David verses Goliath Brawl on Wall Street
GameStop
Take the GameStop hype...
...many observers of this could have looked enviously...
...at those who made money from the surge
However...
...those who bought the stock during the hype period...
...would have incurred big losses shortly afterwards
Markets are always moving...
...as traders our job is to pick...
...the best potential opportunities...
...and not just get panicked into a trade...
...because we’re afraid of missing out
Trading is difficult
All traders will lose money...
...on at least some of their positions
Don't personalise your losses...
...you need to be detached...
...whatever you do...
...don’t fall in love with the market or the stock...
...because there’s real money at risk
Movements in markets can play with our emotions...
...and trading based on emotion is seldom the key to success
Your emotions can interfere...
...with the way you trade in several ways
For example you can be too bold...
...and just plunge into a trade recklessly...
...on the other hand...
...your fear of losses can mean that you exit a winning trade...
...far too early
If trading was easy then everybody...
...would be making money from it...
...but we know that’s just not the case
If you put in place a sensible trading plan...
...and understand the importance of managing risk...
...you’ll be approaching the markets...
...from a more informed point of view
And of course...
...don’t forget to click on the Subscribe button...
...to stay alerted to more films...
...on similar topics in the future