Tips For Trading The Markets After The Financial Meltdown
Eighteen months ago every newspaper and blog was running stories on the financial meltdown
. Today, in general, it looks like we have avoided any such crisis. Many countries did enter recessions but the vast majority of those are now seeing growth again albeit rather fragile growth.
US jobless claims are improving, although there are still the odd unexpected rises to remind us of the fragility of economic recovery. At the same time Greek Debt is rarely out of the headlines. We also have Chinas economy growing at 10% and the problems that such fast growth can cause, especially when coupled with the knock-on effects of trying to reduce that rate.
Each piece of news is providing investors with both pitfalls and opportunities. It is common for investors to have their own trading strategies but all too many ignore the importance of risk management.
Here are a few of the more sensible and frequently used risk management tips.
1) Plan every trade you make trade. Ensure you are only speculating on markets that you have fully researched. Understand at what point you want to close your trade if it goes wrong and the profit level you are looking for. This will help you close your position and also help you control any greed factors.
2) Stick to the companies and markets that you are most familiar with. If you are unsure about the US equities markets and have a good appreciation for the UK equities markets then naturally you should trade the UK equities markets.
3) Reduce your risks and use a Stop Loss. If you are trading the markets through a spread trading account then you can trade Forex, Stocks and Commodities from the same account. That is very convenient but more importantly note that with spread trading firms like City Index you can also add a Stop Loss order to your trades. If a market moves against your position you will start losing on your trade. However, when the market hits your stop loss level then your trade will be closed. In other words it will stop you losing any more money. Note that not all stop losses are guaranteed.
4) Acknowledge that you wont win on every trade. Also accept that after you lose money on a trade you might be tempted to chase your losses ie place some poorly researched trades in order to recoup your capital. These new trades are more likely to lead to a further loss of capital.
The above four tips are all obvious but you would be surprised how many investors ignore them. Many forget that trading is as much about risk management as finding a winning trade. You may not be able to spot the Greek Debt issues or blips in US employment data but you do need to protect yourself from these expected-unexpected events.