Six Tips on How to Make Better Trading Decisions

Does Dollar Cost Averaging Really Work?

Trading is a business and requires significant attention. If you plan to make trading decisions about your risks on a daily basis you need to set aside the appropriate time to make sure you are able to monitor your positions and p&l. If you are finding it difficult to generate consistent gains, here are 6-tips that you can use to make better trading decisions.

1. Do Your Homework

As mentioned, trading is a business and needs to be treated in that manner. Before you place a trade, make sure you do the appropriate homework to determine if the asset you are evaluating has the ability to help you reach your financial goal.

Your homework should include reading the news and any information that reflects on the assets that you are looking to buy and sell. You don’t want to get caught off guard and purchase an asset just ahead of an important piece of new information.

2. Have a Prudent Risk versus Reward Profile

The goal in trading is to make more than you lose. You need to understand that losing is part of the process. To mitigate your losses and maximize your gains you need to have a prudent risk reward profile. This means that you want to make sure that the risk you take is justified by the reward you are looking to receive.

3. Trading is Not the Lottery

If you invest in the capital markets, you need to trade in a manner that fits with a trading business plan. If you take risks that are unlikely to succeed, you will generate gains that are similar to purchasing a lottery ticket. The goal is to either win more than you lose or generate larger gains on winners than loses on losers.

4. Use Stop Losses

A stop loss is a price that you determine will be your exit price if the asset you purchase moves against you. There are many who believe they do not need to place a stop loss order with their broker and instead watch the market.

You can place your stop loss on your online trading platform. The downside is if you do not watch every tick, that news comes out and hammers your position generating the risk of ruin.

5. Don’t Get Greedy

There is saying relative to investing. Bulls make money, bears make money but pigs get slaughtered. Your trading plan should entail were you need to take profit. While you can alter than with changes to your stop loss levels, you need to avoid getting greedy.

Many traders find that once they get greedy they fall in love with a position and when it moves against them, they are unwilling to stop out.

6. Only Risk Discretionary Funds

The money that you risk when you invest in the capital markets should only be money that is discretionary. Avoid using funds that you need to live on that is designated for rent or food.

This will allow you to grow your wealth as your money compounds. You will also avoid having to transfer your funds to your bank account for non-discretionary items and make better trading decisions.

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