Growing an investment portfolio takes time, patience, and ongoing research to make sure you take only favorable positions in the financial market. But if you don’t want to wait weeks or even months to see even just a minor bump up on your portfolio’s value, there is the option of trading the markets. Trading is distinguished from investing in that the latter pivots on long-term strategies to generate returns on investment. Trading fits those who can actively monitor the markets. But while this proactive approach to portfolio management can generate higher ROI over time, it also comes with a much greater level of risk. To help you navigate around this fog of risk, here is a primer on how to grow your portfolio consistently through trading:
Set a Predetermined SL/TP
Every trade should be accompanied by a predetermined stop loss and target profit. Broker platforms allow traders to set both parameters and automatically execute the order once price hits either the stop loss or target profit. Most traders, especially novice ones, find it difficult to close losing positions or even winning ones out of purely emotional reasons, particularly greed and fear of missing out. Automating it with an SL/TP can help you avoid huge financial losses and secure profits.
Don’t Trade Every Waking Minute
The shorter the time frame for your trades, the higher the risk. Avoid scalping, which is opening and closing positions within seconds or minutes. You could get lucky and win a few trades, but over time the strategy proves to be unsustainable and ineffective. Broker commission fees will eat up any profits you manage to get away with. Instead of trading every minute of the day, choose specific hours to trade and stick with it. This structure can help you avoid over-trading and exposing your portfolio to unnecessarily high levels of risk.
Learn Advanced Trading Methods
Advanced trading techniques, from sites like Options Animal, can give you a better edge at winning trades and growing your portfolio. Popular strategies, such as MACD or bullish candlestick patterns, are a good starting point for getting a feel of how markets work, but they aren’t as reliable as you’d want them to be. Advanced techniques, like debit and credit spreads, can yield higher ROI while also protecting your portfolio.
Withdrawing a portion of your capital at least every month is a good way to secure profits and lower risk. For instance, if you start off with $10,000 and you come out with $12,000 at the end of the month, withdraw $500 or the full $2,000. Regularly withdrawing profits can help you avoid the temptations of over-leveraging your trades, which could lead to margin calls and huge financial losses. On the same note, during losing streaks, avoid depositing money on your trading account as this can fuel more losses and develop into a downward spiral of losing and depositing more money to try and get back the initial investment you lost.
Refine Your Sources
Who do you rely on for information regarding the next trade opportunity? A Wall Street banker? Perhaps a self-proclaimed financial prophet? Who you listen to for advice plays a significant impact on your year-end bottomline. It’s important to remember that not all sources are to to be trusted and followed. There is a reason why 90 percent of the trading herd lose money, and only roughly 10 percent make it. You should verify who you listen to and avoid the noise that lurks in the background. Today’s society is certainly more opinionated, especially online. If you follow every John or Jane Doe who can afford their own blog, you’ll be making a lot of mistakes. Instead, research the market yourself and try to peel the layers to get to the bottom of things. Growing your portfolio through trading is all about adopting the right set of habits that will increase your chances of winning trades over time.