Investing has the remarkable potential to pave your way to wealth and financial prosperity. Yet, let’s face it. The world of investments can sometimes resemble a roller coaster ride, with twists and turns that could leave your financial fate hanging in the balance.
Before you start trading with IC Markets, we’ve put together six steps so you can steer your investment journey to success.
- Create achievable and appropriate investment goals
To start off on the right foot and create an effective trading plan, it’s important you understand why you’re trading and what you want to achieve. This insight isn’t just essential for setting pragmatic and tailored goals; it also serves as a powerful source of motivation and how to improve your trading.
Are you looking to diversify your portfolio? Are trading Australian shares used as part of a hedging strategy to mitigate risk in other investments or assets?
Think about making SMART goals – ones that are Specific, Measurable, Realistic and Time-bound. These objectives serve as a yardstick to check your progress and figure out where you might need to change your strategies.
As you get closer to your goals, remember to keep reviewing and updating your plan to fit your current situation, just like you would with a business plan.
- Perform market research and analysis
At the heart of any winning strategy lies comprehensive market research and analysis. Take the time to get acquainted with key indices like S&P/ASX 200 and the Ordinaries, as they serve as barometers for the market’s performance. Additionally, grasp the trading hours and regulations specific to the Australian market to ensure you’re always in sync with its rhythms.
To gain a competitive edge, keep a pulse on Australia’s economic conditions. Monitor indicators such as GDP growth, inflation rates, and interest rates as they can heavily influence the market’s performance. Combine this with sector performance (resources, financials, technology) as different sectors respond uniquely to economic conditions so you can spot opportunities and threats.
The cornerstone of a successful trading plan is selecting the right stocks. Be sure to employ fundamental analysis to nitpick individual companies. Swoop into financial statements, earnings reports, and any other company data to unearth promising shares to invest in. Combine this with technical analysis, which guides you in identifying optimal entry and exit points.
- Assess your emotional management
Have you ever made a silly decision because you allowed your emotions to overpower your rational judgment? The human mind can be a trader’s greatest asset or their worst enemy! Fear and greed often dictate the actions of traders, causing them to buy a market peaks and panic sell during downturns. Developing emotional resilience and discipline is essential for long-term success.
Before you start trading, stick to your trading plan, establish a trading journal, and trade when you are stress-free and relaxed.
- Make use of orders to manage risk
A market order is the simplest and most direct way to execute a trade. When you place a market order, you’re essentially instructing your broker to buy or sell a security immediately at the current market price. It’s fast, efficient, and guarantees execution – but there’s a trade-off. Market orders do not guarantee a specific execution price. Instead, you’ll get the prevailing market price at the time of execution.
It’s important to use market orders for long-term investors as small price differences are less significant over extended holding periods.
A market-to-limit order combines the best of both worlds – the immediacy of a market order and the price control of a limit order. When you place a market to limit order with IC Shares, the broker first tries to execute the trade at the current market price. If that’s not possible, it automatically converts into a limit order with a specified price.
Using this order in your trade will help you set up for success as it adds an element of protection to your order.
- Continuously review your success
While financial gains are the destination, learning from your trading journey will shape your success story. Focusing purely on your return and ignoring the rest isn’t the best way to approach your trading journey, and you would be missing out on useful information to improve your trading.
Some ways to assess your success include;
Win percentage: How many trades you win, given as a percentage. If out of 20 trades you win 8, that means 40% of trades placed result in a profit.
Risk-Reward Ratio: This is used by investors to assess the potential profitability of an investment relative to the amount of risk they are taking.
For example, if you are considering a trade where the potential loss is $200, and the potential profit is $600, the risk/reward ratio for that trade would be:
Risk/Reward Ratio = $200 (Potential Loss) / $600 (Potential Profit) = 1:3
- Keep learning!
Trading is not a one-and-done endeavor. It’s a continuous journey of growth and education as the markets are very dynamic. Reflect on your strengths and weaknesses and where your knowledge may be lacking, consider focusing on those gaps. Learning will help you become a better investor.
Try seeking out trading courses, sign up for webinars, read market analysis and/or engage a mentor.
Remember, knowledge is wealth
