There is often a clear distinction drawn between novice and experienced traders, especially in challenging entities such as the forex market. While this makes sense from the perspective that each demographic will have varying levels of knowledge and experience, it contradicts one core and often underrated aspect of financial market trading and investment as a whole.
This is that there remain several universal and underlying rules that govern the financial marketplace, whether you invest in currencies or chose to deal in stocks and equities. These rules apply to traders of all ages and experience levels, and learning them can help your investments to thrive in the long-term.
3 Universal Trading rules that you must follow
With this in mind, here are three universal and underlying rules that you must keep in mind as an investor: –
1. Emotion is the great destroyer of successful investments
In the forex market, we have seen a rise in the number of automated trades in recent times, while other investment sectors are also increasingly reliant on technology and innovation to deliver returns. While many have cited the reason for this as being the drive to eliminate human error from trades, the rise of automated technology has been triggered primarily by a desire to reduce the role of emotion in investment.
Emotion is the great destroyer of logical and successful investment portfolios, as it encourages individuals to make ill-judged decisions that are based on feeling and sentiment rather than analysis. This rule applies to all investment market, so it is important that you have clearly defined objectives and expectations before making a financial commitment.
2. Theory means nothing if it cannot be translated into an actionable strategy
There is a great emphasis on acquiring knowledge of your chosen market and products as an investor, and there is sound reasoning for this. Theoretical knowledge of a market can only help you to progress so far, however, as this must be translated into an actionable strategy if you are to be successful.
To achieve this, you will need to partner with a viable broker or investment management firm such as Sucden Financial. These market experts will help to translate your knowledge and objectives into a refined plan of action, which can help you to achieve short and long-term investment goals.
3. Risk management is everything
While there may be varying degrees of risk associated with different products and financial markets, all investments are tinged with the threat of decline and potential loss. Recognising this is crucial as an investor, as you must consider every possible trade and develop a proactive risk management plan that helps to minimise losses in the worst case scenario.
This is relatively easy as a forex or equities trader, as modern online accounts allow you to implement stop losses and other risk management features that protect your capital. For other investors, the diversification of assets offers the best form of risk management, as it creates a portfolio that can prosper in a wider range of market scenarios.