A Complete Guide to Trading for Beginners
Everyone is looking for an easy and quick way to happiness and riches. It is considered human nature to constantly search for some bit of knowledge, magic formula or a hidden key that can suddenly lead to a winning lottery ticket or to the end of a rainbow. It is highly unlikely for any of these things to happen so people are looking for the next best thing and the answer is trading. This is one activity that has the potential of giving you huge returns with minimal investment, whether you decide to trade in the forex market or choose to invest in a cryptocurrency.
Depending upon sheer luck is an investment strategy that only the most desperate or foolish would consider. You need to invest on a regular basis, learn to minimize your financial risk as much as possible and let your money work for a long time in order to amass the kind of wealth you want. Bear in mind that the trading market is volatile and can go up and down in minutes, which means beginners need to be very cautious. Here are some of the things that every newcomer should remember:
Establish long-term goals first
Why are you thinking about investing in the forex market? Will you need your money back in a few months, a year or more? Are you saving money for future college expenses, retirement, building a home or something else? Before you invest in any trading market, you should understand your goals and the likely time in the future when you may want funds. If you want your investment returned in a couple of years, the volatility of the market may become relevant. When you know how much money and when you will need it, you can decide how much should be invested and the kind of return you need in order to get the desired results. You need to remember that there are three factors that impact the growth of your portfolio, which are the money you invest, the amount of returns you generate and the duration of the investment.
Know your risk tolerance
As it is a psychological trait, risk tolerance can be different for every investor and is positively influenced by income, education and wealth. As these factors increase, so does your risk tolerance. Put simply, risk tolerance means what you feel about risk and the degree of anxiety you experience in its presence. Would you be willing to risk $100 in order to get $1,000? Everyone’s risk tolerance is different and there is no ‘right’ balance. Therefore, you should know that the idea of perception can be of the utmost importance when you want to invest.
As you gain more knowledge about your investment such as cryptocurrencies, you are likely to consider them less risky than you thought before you bought them for the first time. Hence, your anxiety is automatically reduced when putting in your money, even though your risk tolerance remains the same. When you know what your risk tolerance is, you can opt for investments that don’t make you anxious. Why is controlling anxiety important? It is mostly because people can make huge decisions when they are stressed and these may not be favorable. As long as your investments are within your risk tolerance, you will be able to maintain a cool head and follow a proper process when making decisions. This website http://www.thenextbitcoin.net can help you learn a lot in the crypto industry.
Keep your emotions under control
The biggest obstacle standing in the way of huge returns in both the forex and cryptocurrency market is an investor’s inability to control their emotions and feelings. In the short-term, the prices of currency pairs or cryptocurrencies are a reflection of the combined emotions of the investment community. The short term movements are usually driven by speculations, rumors and hopes; these are all emotions and not logic or systematic analysis of the market. When prices move contrary to your expectations, they create insecurity and tension and cause you to question your decisions. Even when the performance is according to your expectations, you wonder if you should take the profit now or wait more. These decisions need to be made after analysis and not based on fear or greed. Otherwise, losses are bound to occur.
Make sure you know the basics
When you are thinking about investing in a particular market such as cryptocurrencies, it is not a good idea to do it unless you understand its basics. As it is a relatively new market, there are plenty of things that you don’t know about it including the factors that can cause movements. You need to be aware of all the elements that can influence this market in order to make your decisions. Even if you have chosen to invest in a market that you know such as the forex market, you need to be aware of the latest happenings to get the highest possible return. Never invest in any trade that you are not familiar with because the risks are very high.
Diversification should be priority
We have all heard the proverb ‘Don’t put all your eggs in one basket’, but what does it mean? In investment terms, it simply means that you should never invest everything in just one instrument. If you have decided that you want to tap into the potential of cryptocurrencies that are gaining popularity, there is no harm, but you should balance it out with other investments like that in the forex market. How does this help? In case the crypto market is down, you can cover the loss with profits in foreign exchange and vice versa. Therefore, diversification is very important if you want to be successful. Click here to learn more regarding this.
Apart from these things, beginners should remember not to put more money than they can afford to lose. Sure, cryptocurrency and even forex has a world of potential and you can generate great returns, but there is an equal possibility of losing everything. Thus, only invest savings or extra funds to keep risks at a minimum.