In life, clichés are just boring. They’re things you’ve heard a hundred times before and you wish someone would come up with something original for a change.
In trading, the use of the word “cliché” is downright dangerous. It implies something unoriginal or out of date, a fad thought that’s gone out of fashion.
When you hear someone refer to basic online trading principles as clichés, try to remember that these are rules you need to master, not dismiss.
They are how you make money. We prefer to call them “keys to success”.
Here are 4 tips that will serve you well in any type of market, even the crazy ones we’re experiencing today.
Use Your Stop Losses
To traders who make money, a stop loss isn’t a cliché.
It’s the number one investment tool if you want to stay in the markets long enough to turn a profit.
No matter the market condition, stop losses can either save you from leaking all the gains you worked hard to accumulate, or prevent you from losing your investment entirely.
A common rule that’s followed by career-traders is to use a close above or underneath the 5, 10 or 20-period exponential moving average as your stop. So if you bought above the moving average, look for a close below, and vice versa.
Stick to your stops. If you take a small hit, you can dust yourself down and get ready for your next trade. Don’t turn a small hit into a complete wipe-out – it’s much harder to recover from that.
Hope Is Hopeless
As mere mortals, we tend to watch every tick in our favour as the dawn of a new era.
“This losing trade is finally turning!” 🙏
“This winning trade keeps winning, I’m such a genius!” 🏆
Use technical analysis to stop your emotions getting in the way of a sensible trading plan.
Hope, greed, fear: no matter how hard you try, they will dominate your psyche.
But the good news is, technical objects on a chart have never heard of “hope” or “greed”. They don’t have bills to pay or dreams of turning their boss into their butler.
So you handle the technicals, and let your technicals handle your emotions.
The Trend Is Your Friend
When you have a fixed idea that markets are not where they should be, you may get caught in a trap.
You can easily become convinced that the price has reached the bottom, or the top, and it’s’ going to reverse any day now.
But although you may have sound reasoning, markets are irrational and can stay that way for a very long time.
Don’t try to guess if a market has reached its top or its bottom – there will be plenty of room to catch a new trend if it emerges.
Look for evidence of what the trend is today, and try to be on the same side.
Take Your Profits
That’s what you’re in this game for, after all.
When a position hits a profit target, take the money and look for your next trade.
Don’t get carried away with your own success. If you let your position run and run, you may exhaust your luck.
Watching a once glorious-green profit & loss column slip into the red because you held on for more is an agonising experience.
Taking profits, on the other hand, feels pretty good.
Yes, sometimes you’ll wish you had stayed in for even more gains. But in the long run, taking profits frequently is the only winning mentality.
It’s a marathon, not a sprint.
We hope these 4 simple tips will help you to protect your investment during these turbulent times.
The markets are highly volatile, ensure you have sufficient margin in your account to cover open positions. New to TIOmarkets? Simply sign up and create your account to start trading with a low-cost broker today.
For interviews plus to access our free SOS resource for traders in quarantine visit http://tiomarkets.com/fx-in-quarantine