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Many beginners don't realize that trading is not as easy as it looks. ThinkMarkets compiles 10 ways you can improve your trade
We all know that trading means buying and selling assets in financial markets, but what most people are unaware of is the rules to become a successful trader. One of the most common rookie mistakes is thinking that trading is an easy get-rich scheme and that the profit comes naturally. Some adverts might claim that trading can turn a small lump of money into a treasure chest in just a few weeks, but what they don't tell you is the hard work that needs to be put into it.
A successful trader is a skillful, disciplined trader. We may think that trading simply means buying the asset when the price is low and selling when the price is high, but there's actually so much more to it. In this guide, we've summarized ten useful tips provided by ThinkMarkets to create a sound trading plan for your performance.
Contents
1. Understand the Market
In order to build a good trading plan, the first thing you need to have is a good understanding of the market that you're going to be trading in. For many professional traders, it's their daily job to spend time learning and reading about various markets to increase their knowledge. Having a good understanding of the market will help you use market information better and make informed decisions.
Regardless of the trading instrument that you choose, there are 3 basic points that you need to be focusing on:
- Market terminology
- Unique traits of the market
- Factors influencing market movements
For instance, in forex trading, market movements are measured in pips, while in other markets, they are measured in points or ticks. It's important to know these terminologies in relation to each market's unique traits. Moreover, factors that influence market prices also vary from one market to another. The forex market is heavily influenced by the economic conditions of the home countries of traded currencies, while prices in commodity markets rely on supply and demand. Acknowledging these factors will help you spot trading opportunities and dodge unfavorable conditions.
2. Analyze the Market
Aside from understanding the market in general, it's also important to learn how to analyze market conditions in order to find trading signals and spot opportunities. There are two methods of doing so, namely technical and fundamental analysis. The main difference between the two is the type of data used to predict future market movements.
Technical analysis uses past historical price movements, while fundamental analysis relies on economic and financial factors that may have an impact on the market. Technical traders typically use technical indicators and analyze price charts to find patterns that suggest the asset's future price movements. Meanwhile, fundamental traders evaluate the market by measuring its intrinsic value, such as the economy and industry conditions, important news releases, and more.
According to ThinkMarkets, you can choose to use only one method or combine the two. Just start with the basic understanding, then advance to more complex analysis as you start getting a better understanding of how the market works. Just remember that neither of these approaches can guarantee 100% accuracy. They only indicate potential market movements, so it's up to you to make the decision.
3. Determine Your Entry
The market may be open 24 hours a day, but it's not profitable at all times. Sometimes the market is highly attractive for traders, while other times it's best to step aside. This is why it's crucial to choose the right entry point for your trade in order to get the highest possible profit. If the trading signal is strong, you can open a position straight away. But if you're unsure, it's better to hold your trade and wait for a better opportunity.
Sometimes you may find yourself in a situation where the signal looks promising, but your target entry is not available on the market yet. In this case, there's an option to place a pending order which will execute your trade once the price reaches a certain point. It can help you manage your trading risk and ensure that you're entering the market according to plan.
Another tip is to stay updated with market news and publication dates using an economic calendar. This can help you anticipate huge market movements and high volatility. However, keep in mind that financial markets are unpredictable, so there's no guarantee that the forecasts are always accurate, even if they're published by experts.
4. Set Your Risk Tolerance
Novice traders tend to focus solely on profit and loss but often ignore the importance of risk management. They increase their risk exposure as they trade while hoping that the market will turn in their favor. On the other hand, successful traders know their risks well. They would determine their risk tolerance and stick to it until the position is closed. As such, a wise trader won't risk more than they can afford.
In order to determine your risk tolerance, you need to assess your level of experience and your trading size. Many traders risk only 1-3% of their trading size, but ThinkMarkets explains that beginners usually start with 1%. So, if you trade with $10,000, a good starting point would be to risk 1% of the size or $100 per trade.
As a multi-asset online brokerage, ThinkMarkets present a wide range of trading assets starting from Forex to Precious Metals, Commodities, Indices, Shares, and Cryptocurrencies. The Australian-based broker is established in 2010 and has since opened additional headquarters in London and regional offices throughout Asia-Pacific, Middle East, North Africa, Europe, and South America.
Along with its history operation, ThinkMarkets has been awarded and recognized many times in various aspects. Most recently, they won the Best Value Broker in Asia at the 2020 Global Forex Awards.
Average FX spreads for traders opening an account in ThinkMarkets start from 1.2 pips for the standard account, while ThinkZero provides the best trading experience with 0.1 pips spread. Still, traders may need to consider that ThinkZero applies commission from $3.5 per side for every 1000,000 trading volumes.
As a global online brokerage, ThinkMarkets operates under various financial regulatory institutions. For example, ThinkMarkets Australia is managed by TF Global Markets (Aust) Limited and is licensed by the Australian Financial Services as well as the Australian Securities and Investment Commission (ASIC) with ABN: 69158361561. ThinkMarkets UK is registered under the Financial Conduct Authority (FCA) by the company name of TF Global Markets (UK) Limited (number: 09042646).
ThinkMarkets consistently try to improve their trading environments with various advanced products. Automatic trading fans are provided with free VPS Hosting, while passionate traders who'd like to experience beyond MetaQuote platforms can try ThinkMarkets' proprietary platform called ThinkTrader.
The trading platform is available on 3 different interfaces specifically designed for Web Desktop, Tablet, and Mobile displays. Furthermore, customized tools such as 80+ drawing tools and more than 125 indicators for technical analysis accessible even through Mobile screens would certainly provide a brand new trading on-the-go experience.
As far as market updates go, trading in ThinkMarkets would be accompanied with news from FX Wire Pro that is known for its strict policy toward upholding objective journalism and delivering critical, trusted information in real-time. Information segments covered by FX Wire Pro include Economic Commentary, Technical-level Reports, Currency and Commodities, Central Bank Bulletins, Energies and metals, together with Event-driven Flashes.
For payment methods, ThinkMarkets offer the gateway via bank transfer, credit card (Visa and MasterCard), Skrill, Neteller, POLi internet banking, BPay, and Bitcoin wallet.
All in all, it is safe to say that for a company that started business since 2010, ThinkMarkets is an accomplished broker in terms of legal standing and innovation in trading technology. As an additional safety assurance for traders, this broker underlines its commitment to provide a $1 million insurance protection program which is made possible by ThinkMarkets' insurance policy with Lloyd's of London that protects clients' funds for up to $1 million in the unlikely event of insolvency.
5. Consider Your Risk/Reward Ratio
Once you know your risk tolerance, it's time to determine your desired reward level. This is where the risk/reward ratio plays a part. Risk/reward ratio refers to the balance between how much you're willing to risk and how much you're aiming to earn. Similar to the 1-3% risk rule, a 1:3 risk/reward ratio is often considered the appropriate amount for traders.
Using the 1:3 risk/reward ratio means that for every point you risk, you can expect to gain three points of reward. So, if you trade with $10,000 and the risk level is 1% or $100, then your profit target should not exceed $300. However, please note that this number is not mandatory for all traders. Beginners may use a lower ratio like 1:2 to minimize the overall risk.
6. Control Your Trading Capital
As you may already know, market movements are unpredictable and uncontrollable. What you can control is the positive or negative impact of those movements on your trade. This is why you must be able to manage your trade well and use a proper risk management system.
Generally speaking, ThinkMarkets points out three possible scenarios that can happen to your trades:
- The market moves in your favor
- The market moves against you
- The market moves sideways, which means no gain and no loss
To gain control over your trade, you can use features such as take profit to lock in your profits if the market moves in your favor, or stop loss to limit your potential losses if the market moves against you. The most important thing is to follow your trading plan and make decisions based on your risk tolerance. Many traders end up losing a lot of money because they adjust the take profit higher and higher, only to find that the market quickly reverses a while later.
7. Write It All Down
The easiest way to evaluate your trading performance is to make a record of every single trade you make. You can use a paper notebook or write it digitally, whatever works for you. By writing down your daily activities, you can see where you may have winning or losing trades, and perhaps use the information to adjust your trading plan for future improvements.
It doesn't have to be in a "dear diary" form, but each entry must contain the following aspects:
- Previous trading session review.
- Existing trading opportunities analysis, which consists of macro-analysis (news, economic reports) and micro-analysis (charts and technical indicators.
- A defined entry point.
- The amount of risk that you can afford.
- Stop loss and take profit levels.
8. Test Your Strategy on a Demo Account
No matter how skillful you are, it's always important to test your strategy on a demo account before putting it on a real market. Demo accounts work the same way as live trading accounts, except it's only a simulation of the real trading environment. This means, no real money is involved.
Practicing your strategy on a demo account can help you identify weaknesses in your plan and allow you to make adjustments if necessary. Just make sure to follow every step and stick to the plan as if you were trading in a real market. Otherwise, the practice won't be useful.
As explained by ThinkMarkets, the goal is to simulate the trade and see whether the strategy works or not. Many beginners make the mistake of not treating demo accounts seriously because there's no risk. As a result, when the same trading plan is applied to a live account, the outcome differs greatly compared to the demo account.
See Also:
9. Eliminate Your Emotions
Uncontrollable emotion is one of the reasons why traders abandon their trading plans and fail to achieve their goals. When you are trading, it's important to be able to act professionally and remove any non-related influences to keep you focused on your trade. There are times when the market tests your nerves, but as a trader, you should learn to keep greed, hope, and fear at bay. Decisions need to be based on logic, not emotion.
There are several common ways to eliminate emotions in trading. Some traders like to use a daily routine, such as making a checklist related to the trading plan, while others prefer to use a brief physical exercise to help them clear their minds and stay focused. You can use any method that works for you as long as it's effective and it doesn't affect your productivity.
10. Take Time to Know Yourself
Last but not least, it's highly important to know yourself. Every trader is different, so aside from knowing the personality of the market you're trading in, you should also identify your trading personality. This includes figuring out what type of trader you are, what your needs are, and what your goals are. Based on ThinkMarkets' guidance, understanding your trading personality can help you achieve your personal goals and make consistent progress.
Nowadays, there are many assessments online that can help you learn more about yourself in a trading environment. There are also loads of books and articles that talk about different trading styles, so you can choose the one that suits you the most and figure out who you are as an individual.
In a Nutshell
At the end of the day, trading is still risky, regardless of how good you are as a trader. Financial markets are unpredictable, so losses can inevitably occur. Instead of aiming to eliminate losses altogether, it's wiser to keep the losses small enough so that you can keep trading to get more winning positions. The 10 recommendations from ThinkMarkets above push you to build a good trading plan and manage your risk wisely. Do not trade more than you can afford, no matter how attractive the market seems.
ThinkMarkets is a multi-awarded broker for online trading. Since 2010, they have become a highly regulated brand with a global presence that keeps striving to empower traders with access to a wide range of financial markets on their sophisticated platform, ThinkTrader.
20 Comments
Lauren
Apr 7 2023
Hi, I've been "trading" on my demo account for about a month now and I'm planning to switch to a live account next week. I want to execute the trade using my usual strategy (already tested on demo), but I want to increase the size a bit using leverage. Will that change my trading outcome? Well, I hope not cause I really want my first trade to be successful. Also, any suggestions on how much leverage I should use? Thanks!
Jameson
Apr 7 2023
As a beginner, your problem shouldn't concern leverage. Don't use too much leverage. You may think that your broker is doing you a favor by offering leverage, but that's actually far from the truth. Trust me, leverage can make the fall harder on your face if you don't have a proper exit plan.
If you want to keep your risk low, it's best to use a small leverage or don't use leverage at all. I suggest you to simply start small and then increase the leverage as you gain more experience. Also, don't forget to check on the broker's conditions before you start trading.
Collin H.
Apr 8 2023
For beginners, I suggest a low leverage of around 1:5 or 1:10, whereas for expert traders, leverages can be 1:100 or higher. Using 1:5 leverage means that if with $500 in your account, you can control $2,500. My advice is trade a small percentage of your account so a string of losses won't damage you greatly. Don't open multiple trades at once, 1 or 2 trades at a time with tiny amounts of risk is good. Get a feel for trading, then gradually increase the size as you grow.
Boris
Apr 7 2023
I have a similar experience to Lauren. I've also been trading with a demo account for a while now, but I'm so scared of switching to a live account! I'm not confident with my skills just yet, so even though I did pretty well when trading in demo, I might perform badly in a real market. I've read a bunch of stories where traders losing a lot of money on their first trade, so that kind of hold me back a little bit…
Argo_42
Apr 8 2023
Hey, like what George Soros said, "I'm only rich because I know when I'm wrong". Like other traders, he also had bad trades before and he is always ready to cut trades if things are not working the way he planned it.
The most important thing in trading is to build a trading discipline, have a good risk management system, and a strong exit plan. This way, you can minimize your losses. Even if it gets disastrous, you can learn from your losses and turn them into lessons that you can use for future trades. Remember, losses are a part of trading, so you need to make peace with it. The ultimate goal is to make more gains than losses.
That aside, I think you should try to step out of your comfort zone and start trading with a real account. It doesn't matter if the outcome is good or bad, but at least you have something to reflect on, something to learn from. If you're scared of losing too much, simply open a small position, then place a strong safety net like stop loss and take profit. Good luck :)
Danny
Apr 7 2023
As a beginner trader, I'm excited to learn about the 10 ways to successful trading, but I'm also feeling a bit overwhelmed. I want to make sure I don't miss any crucial steps, but I'm unsure which points to prioritize. While all 10 ways seem important, I'm particularly confused about which one to focus on first. Should I start by creating a solid trading plan, or by understanding and analyzing the market? Or perhaps, should I prioritize considering the risk/reward ratio for each trade?
I understand that all of these points are interconnected and that skipping any step could negatively impact my success as a trader. That's why I'm hoping for some guidance on which point to consider first. I want to create a strong foundation for my trading journey and develop good habits from the beginning.
Yerry
Apr 8 2023
In my opinion, starting with a Trading Plan is a good way to begin. Your Trading Plan should include why you want to trade Forex, how much money you can afford to trade with, your trading rules, your goals, risk management, and all the rules you need to follow to stay disciplined.
After that, you can focus on understanding the market. Opening a demo account can help you avoid losing money while also giving you the chance to analyze the market. You can also practice the risk/reward ratio while controlling your trading capital. It's a good idea to write down all of the trades you make, either manually or by using a trading journal that your broker may offer.
From your trading journal, you can learn about yourself and your trading habits. It's important to know if you tend to be a greedy trader or a FOMO (fear of missing out) trader. By understanding yourself and your tendencies, you can avoid the negative effects of emotions and make better trading decisions. This may take some time, but it's definitely worth the effort.
Overall, following these steps can help you become a successful trader in the long run. Don't be discouraged if it takes some time to get the hang of things. With practice and discipline, you can achieve your trading goals and avoid common mistakes that may lead to losses.
Danny
Apr 8 2023
As a beginner trader, I'm excited to learn about the 10 ways to successful trading, but I'm also feeling a bit overwhelmed. I want to make sure I don't miss any crucial steps, but I'm unsure which points to prioritize. While all 10 ways seem important, I'm particularly confused about which one to focus on first. Should I start by creating a solid trading plan, or by understanding and analyzing the market? Or perhaps, should I prioritize considering the risk/reward ratio for each trade?
I understand that all of these points are interconnected and that skipping any step could negatively impact my success as a trader. That's why I'm hoping for some guidance on which point to consider first. I want to create a strong foundation for my trading journey and develop good habits from the beginning.
Graham
Apr 7 2023
All of the theory mentioned above, such as understanding the market and practicing on a demo account, can be done more efficiently. These technical aspects can be learned through theory, and rules can be set to practice them effectively. However, points 9 and 10 are challenging because they do not have a clear theory and may differ between traders. Understanding the psychology of trading and knowing oneself can be difficult.
And I am little bit confused, why most of traders do the exercise to clear their mind. And is there any tips to control your emotion beside that?
Ferdi
Apr 9 2023
Hey there, let me answer your question. To control the emotion you can do some tips that I suggest below, this is based on my experience and the community traders that I follow. Those are:
Practice mindfulness: Mindfulness is like taking a chill pill for your mind. You can use techniques like meditation, deep breathing, or visualization to stay calm and focused when things get stressful.
Keep a trading journal: Keep track of your trades and write down how you felt about them. This can help you spot patterns in your behavior and make changes when needed.
Develop a trading plan: Make a plan with specific goals and risk management strategies. This can help you make more rational decisions and avoid doing something dumb because of fear or greed.
Stay disciplined: Stick to your trading plan and don't let your emotions take over. Don't make impulsive decisions that you'll regret later.
Take breaks: Give yourself a break from trading to rest and recharge. It's important to take care of yourself so you don't burn out.
Seek support: Don't be afraid to ask for help from other traders, a mentor, or a mental health professional if you're feeling overwhelmed.
Remember, trading isn't just about numbers and charts. It's also about managing your emotions and having a healthy mindset. And my way to clear my mind is to take breaks in trading. And as it said before, it really prevent me to burn out! It is effective to me, by the way
Saiko
Apr 13 2023
What strategies can we implement to protect our capital in trading? We all know that the market is full of surprises and can go in any direction at any time. But fret not, there are ways to navigate this unpredictable terrain. ThinkMarkets highlights three possible scenarios that can occur in your trades: the market moving in your favor, against you, or sideways with no gain or loss. To regain control over your trades, it's essential to employ risk management techniques. You can utilize features like take profit to secure your profits when the market moves in your favor, or stop loss to limit potential losses when the market goes against you. The key is to stick to your trading plan and make decisions based on your risk tolerance. Avoid the temptation of continuously adjusting your take profit higher, as it may lead to disappointment if the market suddenly reverses. So, what strategies do you follow to protect your capital and navigate the unpredictable nature of the market?
Taylor
May 7 2023
I was reading about Forex trading and came across this article that said the first step to successful trading is understanding the market. According to the article, there are three basic points that we need to focus on to understand the market: market terminology, factors that affect the market, and unique traits of the market.
Now, I already have a pretty good understanding of the market terminology in Forex, such as currency pairs, lot, spread, leverage, and so on. And I also know that there are various factors that can affect the market, like sentiment, geopolitics, and economic events.
However, I'm still not quite sure what "unique traits of the market" means in Forex trading. Can someone explain it to me and perhaps give me some examples of what these unique traits might be in the Forex market?
Keita
May 8 2023
So, you're wondering about the "unique traits of the market" in Forex trading, huh? That's a great question! To explain it simply, unique traits refer to the distinct characteristics or features of the Forex market that set it apart from other financial markets.
For instance, one unique trait of the Forex market is its high liquidity, meaning there's always a lot of buyers and sellers ready to trade at any given time. Another unique trait is the 24-hour trading cycle, which allows traders to access the market around the clock.
Other unique traits might include the market's volatility and sensitivity to global events, as well as the influence of central banks and government policies on currency prices. These are just a few examples, but I hope it helps to give you a better idea of what "unique traits" means in Forex trading.
Wesley
May 9 2023
Hey dude! Just want to note that unique traits refer to the specific characteristics of a particular market that set it apart from other markets. So, it is not just about the Forex, okay?
While some traits may be common among different financial markets, each market also has its own unique features and dynamics that traders need to understand in order to be successful.
For example, if you're trading metals like gold or silver, there will be unique traits of that market that you need to be aware of as well. Some of these may include supply and demand factors, geopolitical events that affect commodity prices, or fluctuations in exchange rates.
The key is to do your research and gain a solid understanding of the market you're interested in trading, including its unique traits, risks, and opportunities. That way, you'll be better equipped to make informed trading decisions and hopefully achieve your goals.
Gareth
May 8 2023
Hey there! I'm a bit confused about which type of analysis is better for trading - technical or fundamental? I mean, some traders swear by fundamental analysis, while others seem to rely solely on technical analysis. It's kind of hard to know which one to choose, you know? I've noticed that most of the trading webinars and educational materials out there focus heavily on technical analysis, but don't cover fundamental analysis as much. Why do you think that is? Do you have any tips on which type of analysis is better for trading?
Heru Andriano
May 9 2023
Hey there! That's a great question, dude! When it comes to technical vs. fundamental analysis, it can be a tough call. Some traders are all about the charts and graphs, while others like to dig deep into economic data and global events. Personally, I think it's good to have a balance of both, but it depends on your trading style and goals.
You're right, a lot of trading materials tend to focus more on technical analysis, and that's probably because it's easier to teach and understand. Fundamental analysis, on the other hand, can be more challenging to learn, but it's not impossible. The tricky part is that fundamental analysis requires a good understanding of global economic and political events, as well as a knowledge of financial statements and other data related to the companies or assets being analyzed. It requires more research and analysis compared to technical analysis, which is more focused on patterns and trends in price and volume data.
Hillary
Jun 8 2023
Hey there! When it comes to day trading, the choice between technical analysis and fundamental analysis can be quite a topic of debate among traders. Some swear by the power of technical analysis, using charts, indicators, and patterns to make their trading decisions. They believe that studying price action and market trends can provide valuable insights into future movements. On the other hand, fundamental analysis enthusiasts argue that understanding the underlying economic factors and company fundamentals is crucial for making informed trading choices. They believe that news events, earnings reports, and economic indicators can drive market movements.
So, what are your thoughts? Do you lean more towards technical analysis and believe that chart patterns hold the key to success in day trading? Or do you place greater emphasis on fundamental analysis, keeping a close eye on news and economic releases to guide your trading decisions? It's fascinating to hear different perspectives on this topic!
Loftus
Jun 15 2023
@Hillary: Personally, I believe that a combination of both technical and fundamental analysis can be a powerful approach in day trading. Technical analysis can provide valuable insights into market sentiment, trends, and potential entry and exit points. Chart patterns, indicators, and price action can give you a visual representation of the market's behavior, helping you identify potential trading opportunities.
However, it's important to recognize that market movements are not solely driven by technical factors. News events, earnings reports, and economic indicators can have a significant impact on the markets. Understanding the fundamental factors that drive price movements can give you a deeper understanding of the underlying forces at play.
In my opinion, incorporating fundamental analysis into your trading strategy can help you make more informed decisions. By staying updated with relevant news, economic releases, and company fundamentals, you can have a better grasp of the market's overall direction and potential catalysts for price movements.
Gerard
Jun 27 2023
Hey there! Just read this article and found something that interesting. So, in the article it said that the recommended risk ratio in most trading is between 1% to 3%. So, I am little bit curious because of that. So, I just want to ask, why do many traders choose to set their risk at 1%-3% of their trading size? What factors contribute to this risk management strategy? How does it help protect their trading capital and promote long-term growth? Is there a relationship between the trader's level of experience and the chosen risk percentage?
Hope there is an answer about that, thank you!
Peter
Jul 6 2023
@Gerard: Hey! It's great that you came across that interesting article about risk management in trading. Setting the risk ratio between 1% to 3% of the trading size is a commonly recommended practice among traders. The reason behind this choice lies in balancing risk and potential reward. By limiting the risk to a small percentage of the trading capital, traders aim to protect their overall investment and maintain capital preservation.
Several factors contribute to this risk management strategy. Firstly, it helps to control losses during unfavorable market conditions or unexpected price movements, reducing the impact of potential drawdowns. Secondly, it allows traders to stay in the game even after a series of losing trades, preserving their trading capital for future opportunities. Additionally, by maintaining a disciplined approach to risk, traders can focus on long-term growth and sustainable profitability.
The chosen risk percentage can also be influenced by a trader's level of experience. Typically, beginners may opt for a lower risk percentage as they are still learning and may encounter challenges in managing risks effectively. As traders gain more experience and develop a deeper understanding of the market, they may choose to adjust their risk percentage based on their comfort level and risk tolerance.
Ultimately, the recommended risk ratio of 1%-3% aims to strike a balance between capital preservation and growth. It helps traders manage risk, protect their trading capital, and foster long-term profitability. However, it's important to remember that risk management is a personal decision, and traders should consider their individual circumstances, risk appetite, and trading strategy when determining the appropriate risk percentage for their trades.
(also check this article : All You Need to Know about Risk/Reward Ratio)