Investing and trading are becoming more and more popular among ordinary people like you and me because it offers the opportunity to earn a lot of money. Another reason is that more and more people want to take responsibility for their financial future and want to stay depending on their financial advisors. So it is good to know before jumping into this arena that there are 3 key steps you need to master to become and be a successful investor and entrepreneur.
The following are the 3 key steps.
1. investment and trade psychology
There is no doubt that the psychology of investment and trade is a difficult part of investment and trade. Intellectual skills can be easy. But updating these skills is usually difficult. It is said that investing and trading is 90% of psychology. The rest is divided into risk management strategies and investment strategies. In fact, it doesn’t matter if it’s really exactly 90% or a little less. It shows that psychology is the dominant part of investing and trading. It is a psychology that prevents most people from making huge amounts of money possible and living the life they really want.
As human beings, we have emotions and it’s good because our emotions often serve us well and help us make better decisions. Emotions are like signals on a radar screen that warns us when something is good, bad, positive, negative, disturbing, disturbing, it’s called. The variety of emotions is enormous. However, when it comes to investing and trading, our emotions often do not support. At its core, our emotions want to protect us, but that is exactly what prevents most people from succeeding as investors and traders. Our emotions allow us to act and do things we should not do. We show certain behaviors that are detrimental to our investment and trading.
+ We do not trade when our trading plan requires us to do so.
+ We rework trading.
+ We place a stop order to reduce our losses, but as the price moves in the direction of our stop-loss, we adjust it and finally we do not stop.
+ Or we hesitate too long to trade.
Does it sound familiar?
Most people don’t realize how much their emotions affect their investments and trading. If there is one guarantee, it is that “your” psychology will affect you. The sooner you understand and accept this, the better. So how do I invest when I tend to be an emotional person? Your first goal must be to learn to control emotions. When you achieve this, your chances are very high that you can be a successful investor and investor.
The second most important part of investment and trading is risk management. This is even more important than the investment strategies used in trading. This may surprise you, but you may have an effective investment strategy, but with improper risk management, you may lose money. For example, many people focus on getting a high win rate, which means that the number of transactions won is high in relation to the total number of transactions. Let’s say 7 out of 10 transactions are winners. This would mean that you have a winning rate of 70%. However, if you win $100 on each of these transactions (profit of $700) and lose $300 on each lost transaction (loss of $900) you end up with a total net loss of $200. This simple example should illustrate that you must, first of all, manage the risk.
Let’s draw one more example. If your stake is 50%, which means that 5 out of 10 transactions are winnings, common sense suggests that it is difficult or even impossible to be profitable in the long run. However, with proper risk management, your stake can be as high as 30% and you can still earn money.
How is it possible?
Simply by following one of the most important rules of success in investing and trading. It states that average winners should be higher than average losers. More specifically, if the 5 winning trades in the above example earn an average of $200 (profit of $1000), and your lost trades only bring you a loss of $100 each (loss of $500), you will have a total net profit of $500. This is also referred to as the reward-risk ratio, which in this case is 2:1. You win double the amount of the winning trade compared to the loss of the losing trade. If you follow and practice this simple “religiously” rule, you will surely be an effective trader and trader.