The words ‘act in haste, repent at leisure’ should be front and center in the minds of anybody who trades stocks, crypto, or any other asset – many traders, and particularly newcomers, open positions at the wrong time simply because they have acted in haste and without performing the necessary due diligence.
If you were to write a book on how to be a sensible investor, not entering spontaneous, off-the-cuff trades that have not been researched or stress-tested in any way would be in the first paragraph on page one.
How can we avoid falling into the trap of impulsive trading and instead take a calmer, more measured approach?
Start small and compound upwards
For newcomers to trading, the excitement of getting involved in the markets – and perhaps making some money – is what drives many to make those reckless trades that end up being a key lesson-learning experience.
Whether you are new to trading or trialing new strategies and ideas, the smart way to invest is to start small – test the quality and profitability of your trades with loose change in the early going.
If you build a book of consistent winning trades, it will be easy enough to scale up and compound your profits using the same theories. Until you have proven to yourself that you have what it takes to be a successful trader, you should only invest money you can afford to lose.
Do your homework
The worst traders are those who engage in spontaneous plays where the word of a stranger online, rather than any research, has been the key motivator – not all shills end up in a GameStop coup.
That’s the quickest route to a bankroll bust because even with a few lucky ‘wins’, you will still lose out long term.
Only entering positions that have been thoroughly researched and franked by others is the best way for traders to sleep at night.
Stick to a pre-determined budget
Sticking to a pre-defined budget ensures that you can only lose an amount that is acceptable to you.
Sensible traders consider their bankroll to be like capital invested in a business – you may not see it again for months or even years. However, in time, you will hopefully recoup that initial investment if you step into the shoes of a sensible trader.
Use stop-loss and take-profit tools
Successful traders have an almost robotic way that they go about opening and closing their positions.
Why not follow their lead by actually employing bots in your trading? There’s nothing particularly sophisticated about the stop-loss and take-profit tools offered by most exchanges and trading software packages, but they do allow you to close a position when the desired profit – or grudgingly accepted loss – has been reached.
This is the best way to lock in green numbers while preventing your reds from spiraling out of control.
Think long term, be realistic
Think that you can make a quick buck from trading? Think again.
The most successful investors are those who think long term, who are realistic in their profit goals, and who accept that peaks and troughs in the market are unavoidable. Coming out the other side with an effective plan is the key.