In this article we will make a decalogue of the ten rules never to forget when investing, a sort of trader’s decalogue with investment advice that is always valid. Do you know those instructions that put at the beginning of the manuals of electronic devices, such as “do not get wet”, “do not leave on the stove” and things like that? Well, you can say that the same thing applies to online trading and investment in general, but especially to online trading. This difference is very much there because in trading you have the possibility to personally control the operations and place orders in a very fast time, so sometimes you have little time to decide and you can get a little confused or even more often say “this time I do so” or even fall into errors due to laziness or haste.
But let’s start immediately with these ten commandments, which these days are also very popular because of Benigni and his show on Rai Uno. Well, here they are, ready to keep in mind or to be placed with a copy and paste on some desktop stick:
- Observe the market before opening a position
- If there are no defined trends, wait
- Diversify your portfolio
- Practice with a demo account
- Define your budget carefully
- When you are losing, have the courage to stop and accept the mistake.
- When you are winning, have the courage to stop and make the profit in time.
- Try to remain emotionally detached, both in case of loss and gain.
- Before you invent your own strategies, study the existing ones.
- Study, practice, inquire.
Observe The Market Before Opening A Position
Before investing money in a trading operation, we need to see what is happening to the security that interests us. By “observe” we mean above all to observe visually, with the eyes, the chart in real time of the quotations of the Stock. In fact, it suffices a single look often to make us understand if to the Stock is happening something particular, if it is a situation of calm flat, if it is a situation of uncertainty if there is volatility etc. The charts can be of two types, to lines or to Japanese candles. We recommend you to use or better learn how to use Japanese candlestick charts. In addition, we recommend you to learn how to use the chart indicators to add, in order to better study your strategies. Examples of chart indicators are a crocodile, moving averages, Bollinger bands etc..
Wait for the Trend
The market can show situations of uncertainty that can manifest itself in two ways: waiting or volatility. While waiting, the price chart shows flat. In volatility, however, there are roller coasters and the price moves very intensely (quantity) and at great speed. Waiting for the trend means waiting for the market to “signal” a direction in which the stock will most likely tend to move in the next period (short, medium or long).
Diversify the Portfolio
Diversification means the inclusion in the portfolio of different securities, which may differ not only in nature (stocks, currency pairs, futures, indices, etc.) but also in economic sectors, geographical areas, etc.. A portfolio is all the more repaired as it is better diversified, so if you make sure to diversify it well, you will always have the risk very well spread. The only thing is that you will have to make sure that you do not spread the profit too. Diversified and up-to-date.
Practice With the Demo Account
Whether you are novice and therefore have no experience, or you are already practical but need to test a new strategy, the demo account allows you to do so without spending real money and therefore without risk. In this way, you will practice “doing” and will not risk anything. When you choose a broker, make sure that they also offer you a good demo platform that is based on the same real time data as the platform in real money mode.
Define Your Budget Carefully
If you are thinking of starting trading maybe with a loan or committing money you don’t have, don’t do it. To trade you need to trade with peace of mind and above all there are risks, so do it responsibly. If you commit a periodic amount of money to trading, make sure beforehand that all the important expenses for your life are already covered: rent, family, taxes, etc. Commit only a fixed trading percentage per month based on your income and never cross that threshold.
Stop When you Lose
It can be a little difficult to understand for someone who has never made the mistake of perpetrating the maintenance of a loss-making position in the hope that it would sooner or later mark a turnaround. Pretend if someone had invested in the rise in oil some time ago at $90 and now is still waiting for it to rise. Maybe it will, but in the meantime, he’s losing big time. He should’ve come out around $70 and considered all the news coming in, right?
You can buy oil on sale in a while, but that’s a different story.
Stop When you Win
But how, you say, do we stop even when we win? Yes, but precisely when we win, not when we start winning. To make a profit in online trading, you need to close the position. Let’s pretend we bought apple stock at $60 and now we’re back at $110. Selling now I would have a profit of $50 per share. That’s not bad. I could sell some of it and make a profit, maybe keep the others to see if they will get any more raises. In the meantime, the stock I sold will give me cash, which I can invest in other things. You know what I mean? We’re sure you do.
Stay Emotionally Detached
When trading you need to put aside feelings, which should not be associated with love, your girlfriend, wife, husband, etc. By feelings here we mean anger, joy, exaltation, depression, anxiety etc. These are psychological states that must be absolutely avoided and will never bring you anything good. You can be happy for a profit and enter a state of euphoria that leads you to buy at random (bad). We could enter a state of sadness because of a title that has gone decidedly against our expectations. We could be in a state of anxiety: the anxious state is absolutely the most common. To avoid anxious states must not get muddy in those situations where you have everything to lose, where you can lose more than you have etc.. Try to operate with all possible guarantees, and remember to always set the stop loss, so as to block losses automatically, in case there are sudden movements contrary to your position.
Study Existing Strategies
On our website you will find and will find many trading strategies that you can use for your business. From the point of view of the strategies, it must be said that everyone can create their own, based on existing ones. The important thing is, in fact, to take example from the existing strategies and if you adapt them to a security to which you care particularly and of which you know very well the dynamics. When you have studied some strategies, you will understand this speech better.
Study, Practice, Inform Yourself
What’s that? Three commandments, trading tips in one! Is that too much? Perhaps yes, but it’s better to merge them because practice is study, information is a study, you practice by informing yourself, information should be practiced, practice should be studied. In short, mix these terms as you like and you will always get something good. Joking aside, the study refers to strategies, indicators, charts, chart types, concepts of finance, every single element of which online trading is composed.
The practice, as we said about demo accounts, should also be applied outside the platforms. It is practiced for example to analyze the news that arrive in a certain sector, such as news coming from the ECB. In this sense we have called into question the third point, which is information. Information can be said to be the key point, the fundamental element of online trading because news is what makes prices move. It can be true news, false news, announcements, forecasts.
The market is like a person. It moves, is afraid, gets involved, listens to the truth and believes in nonsense. By market we mean the prices of securities, the meeting of supply and demand. And who creates the demand, who creates the supply? Traders, who as men, let themselves be carried away by the feelings we talked about above. An ad can be read in various ways, positive and negative. Some ads can even be misinterpreted, as happened for example a few days ago when Draghi talked about the possibility of not adopting the Quantitative Easing and saw the stock exchanges collapse. Actually, Draghi talked about the possibility that there was no QE, but he didn’t say otherwise. This little misunderstanding has seen millions of Euros burn, so in addition to following the news, you’ll also have to be good at interpreting it correctly.
When these statements take place, CFDs usually have very strong initial jitters, then they fade and then resume a trend, if there is one. However, there are jumps and they are the lifeblood for “speculative” traders and scalpers. Scalping is a strategy that involves opening and closing a position in a very tight time frame, which allows the trader to make a profit for price movements that occur within minutes or even seconds. It is a practice that requires the use of substantial amounts of money in order to get concrete results, as the more you bet, the more the fluctuations affect how much you bet.
So, since you do not want to at this moment you are practicing the first point, which is that of the study. To study the terms connected to the trading, that is the so-called “terminology” is decidedly important in order to be able to begin in the best way. Some of the most unknown terms among those who enter the trading world are those of “margin”, “margin call”, “initial margin”, “maintenance margin”, “spread”. These are important terms because they concern the costs of trading, because in an industry where you can earn money even quickly, comfortably from home, there must also be costs. In fact, one of the costs of trading is the spread, which is the difference between the purchase price and the selling price of a particular security. If you pay attention to the securities available in online trading, there is a difference between the two. That difference is the spread and represents the broker’s gain for each security purchased.
The concepts of “margin” instead can be summarized as guarantees that the broker asks in order to keep a position of a security open. The initial margin is how much you actually release for a Stock when you trade it, instead of paying it in full. These margins exist because in trading you operate with leverage, a mechanism that allows you to use much less money than it would take to buy a stock, a currency pair, a commodity, etc.. Finally, when it comes to the financial products you can trade on, you should understand the differences between CFDs and shares, between CFDs and physical commodities. At the end of this informative decalogue and dedicated especially to those who begin to be interested in online trading, we can say that the difference between a share and a CFD lies in the fact that the latter is a derivative product of the “passive” type, i.e. it passively follows the trend of the reference share. If the share rises, the CFD on that share rises, if the share falls, the value of that CFD falls. To this logic is added that of price formation on the market as on the stock exchange, on CFD trading platforms.