Essential Soft Skills for Online Traders

See also: Understanding Investing

Online trading in all the major markets is more popular than ever. As computer access becomes universal, many working adults are discovering how easy it is to set up a brokerage account and get into the action with stocks, forex, options, futures, precious metals, cryptocurrency, and more. Whether you've been involved for several years, a few months, or are just getting started, it's imperative to follow some wise rules of the road. In addition to analyzing the market niches you want to trade, be sure to spend time finding a reputable brokerage firm to work with.

After that, choose a platform that matches the kinds of assets you intend to buy and sell. Learn how to go to cash or stay out of the action when prices are extremely turbulent. Large numbers of newcomers and experienced practitioners find out that money management is the secret to survival. They also learn that auto-trading is a time saving tactic. The same is true for copy trading, sticking to a rules-based system, and never using money that you can't afford to lose.

Review the following suggestions to maximize your probability of earning a profit.

Study the Market

Most new and experienced traders have one or two favorite market niches. Whether your preference is forex, equities, cryptocurrency, or something else, become a student for a few weeks and read up on the subjects that attract your attention. The good news is that there are all sorts of excellent resources online. Most are free, but a few, like books and educational classes, come with modest expenses.

Start with the top brokerage sites by exploring their education tabs. Don't limit yourself to one type of learning. Mix reading with watching videos, taking part in forum discussions, attending tutorials, and taking courses on specific topics within your area of interest. How much time is enough? That depends on your current level of knowledge. Aim to spend the better part of two weeks trying to devote at least two hours per day to the endeavor.

Choose an Excellent Broker

There is no substitute for this critical step. Finding a reliable, trustworthy, competent broker is the single most relevant duty you have at the beginning of the process. People who want to bump up their odds of success in online trading should take the time to vet potential brokerage firms. Check verified reviews on multiple websites.

Call each candidate's customer service number and ask questions to see how quickly and completely they respond. Read the fine print on their sites to learn about fees, products, services, hours, assets they trade, account setup, platforms, and educational resources. Find out if new account holders can use simulators and demo accounts. Then, choose your favorite based on all the accumulated data and your personal preferences.

Use a Proven Platform

As trading enthusiasts and serious practitioners gain experience, they come to appreciate the importance of platforms. The top online brokerage firms all offer at least one of the major versions for their account holders. The ones available on each site depend on what the customers want, the kinds of asset classes offered, and the decision of the firm.

The metatrader 4 platform from AvaTrade is one of the leading resources for those who engage in forex markets. The platform has been around since 2005 and has millions of users. MT4 is an example of a proven application within the forex retail trading world. Check out the best offerings in your particular asset class by doing research on the internet and reading about the various offerings.

Avoid Turbulent Times

For certain types of people, it's almost impossible to stay away from the marketplace. No matter what the conditions are, they want to be involved in the action. This is a dangerous attitude. In extremely turbulent scenarios, there is wisdom in going to cash and waiting until a clear trend develops. Individuals who have the discipline to sit out chaotic daily sessions are better positioned to make long-term gains in their accounts.

Stick to Your Rules

Write a set of rules that govern when you will get into a position or when you'll get out of it. If necessary, use pre-written sets of rules from a lead trader or resource you trust. The point is to avoid seat of the pants decision making. Rules can help people avoid emotional buying and selling, which can be the most financially detrimental behavior of all. If necessary, write rules into an auto-trading app, so there's no question of deviation. The beauty of auto-trading is that users can create and test an app, set their accounts to auto-trade, and monitor the results as often as they wish.

Explore Copy Trading

Some of the major brokerage firms offer copy trading services to their clients. There are many variations, but the common version of copy trading is where anyone can sign on as a follower to an experienced or lead trader. Once signed on, the follower can designate any amount of the account balance for copying the exact positions of the leader. Copy trading is not for everyone, but newcomers can learn a lot just by watching what the leaders do. The other advantage is that novices can earn a similar profit, based on account size, as the leaders do.

Employ Money Management

There are dozens of money management rules and theories. The most suitable ones for beginners are simple but effective. Consider using a 2% rule, which means never risking more than that much of your total available capital on a single transaction. If you want to buy ABC stock because it meets all your requirements for going long, limit the amount you spend on it.

Say one share costs $5, but your account balance is $2,500. Two percent of $2,500 is $50, so you could afford 10 shares under the 2% method of money management. The guideline might seem strict at first, but it's a powerful tool for preventing an account blowout, even if you run into many consecutive losses.

About the Author

Drew Allen is a financial enthusiast, seasoned blogger, music and sports fanatic. He enjoys spending time outdoors with his wife and daughter fishing and boating. He is dedicated to his 20+ year career in the banking, mortgage, and personal finance industry.