Prior to risking your capital, it’s import for you to determine how you will generate revenue. Trading and investing is a business. Therefore, it’s imperative for you to determine your strategy and risk management before you invest. Your financial goals, and your ability to spend time watching the markets can help you determine whether you want to trade the markets on a short-term basis or invest for the long-term.
Different Types of Trading Tenors
There are several types of investing and trading strategies. A strategy should be geared to your financial goals, your risk profile, the time you must devote to your investments, and your trading personality. It’s important that you understand that if you plan to trade actively, you will need to devote the necessary time needed to track the markets. If you plan on long-term investing, then you need a strategy that over time will help you meet your financial goals. In this type of strategy, looking at your statements once a month will be enough. One of the more popular long-term trading strategies is a buy and hold equity strategy. Over time, equities have increased in value. If your time horizon is more than 10-years, than a buy and hold strategy can work for you.
Following the Markets
It’s important to follow the markets especially if you plan on employing a short-term trading strategy. To determine the strategy that is right for you, look to see if your broker has an education section. Using iFOREX education ,you can determine the different types of strategies that are used and how you can execute those strategies. Short-term trading strategies require a significant time commitment. Not only do you need to follow the markets, but you also need to track the news that can affect your trading positions. Economic news, earnings releases, monetary policy changes as well as political controversy can drive exchange rates, commodity prices as well as equity prices.
Each investor sees time differently. Some might see 1-year as an eternity, while others will view 12-months as short-term. If you are a day trader, where you close out your positions every day, you should consider yourself a short-term trader. Regardless of the time frame, it’s important to have a sound risk management practice in place. One of the benefits of day trading is that the end of the day serves as a risk management tool. If you do not plan on carrying your positions overnight, then when the session ends, you stop out or take profit.
Some of the more popular trading strategies are based on technical analysis. This includes trend following, momentum, mean reversion and market neutral. There are dozens of technical analysis indicators you can use to create a trading strategy. You want to match the strategy you pick to your trading personality using a technical indicator that enhances the strategy you choose. Additionally, before you risk your capital, consider trading using a demonstration account which allows you to test drive your strategy with virtual money.