Achieving large trading profits is now more attainable than ever for independent investors willing to invest the time and resources to succeed. The financial industry underwent a fundamental transformation during the information technology revolution in the mid-1990s that delivered the ability for individuals to eliminate the high costs associated with professional investment advisers in order to generate high returns for their portfolios.
Online discount brokers currently provide low-cost trades and powerful trading platforms to their clients that replace the high commissions and fees associated with prime broker dealers and financial advisers. Independent investors are now empowered by access to market research tools and low-cost discount brokerages to make trades in their own accounts. They are now fully capable of trading on their own in a manner to similar to professional financial planners and fund managers.
Executing profitable trades in stocks, commodities, currencies, options, and other financial instruments relies on instantaneous access to market information and research such as: earnings releases, economic figures, news, and price quotations. Specifically, the two most vital elements for any trader to possess during market sessions are timely and accurate price quotes and charts for the assets being traded.
Online Trading Strategies
Prospective traders will first need to do a lot of reading and research about the financial markets and various trading strategies. In particular, it is essential to understand the potential risks and returns available in each market, which is the essence of evaluating trading opportunities. The starting point should always consist of knowing exactly how much investment capital will be allocated to trading on your own. From that point, identifying the right strategy and markets to trade will become easier throughout the research process. There are seemingly endless ways to generate high investment returns and each has its own associated levels of risk. The best course of action for a prospective trader is to read several books and view workshops on different trading strategies. Traders must evaluate their own risk tolerance and select a trading strategy accordingly. Investing time horizons, capital requirements, and type of financial securities to trade are all primary components to form this risk profile. Once a strategy is adopted, it is important to remove all emotions and adhere to it with cold precision.
The key to a successful trading strategy is not only success rate but also position sizing. Surviving a string of losses long enough to get back to winners so you need to limit your risk. If your trading system produces 80% winners (a very good rate) it is still statistically possible that you can encounter a string of a half dozen losses. The key is to ensure that they are small and do not significantly impair your ability to continue trading.
Other important considerations when forming your trading strategy are the elements of time and frequency of trading. In other words, how much time do you want to invest in trading? For instance, a day trader will need to invest more time to properly execute a strategy, often this will be every day the market is open. Another strategy may call for making only one trade every few months or years. Each has its own risks, rewards, and transaction costs to consider when devising the ideal trading strategy.
Finding a Discount Broker
Choosing the trading strategy beforehand is essential to selecting an online discount broker that provides the necessary trading platform, analytical tools, and technical support to execute it. Most online brokerage firms provide prospective clients with a vast array of information regarding trading platforms, quote systems, discount trade rates, and capital requirements. Funding a new account is quick with electronic funds transfer and most brokers provide virtual trading platforms to test strategies without risking actual investment capital.
Investors are empowered more than ever to eliminate the large fees for financial advisers, mutual funds, and other middlemen that cut into the profits of their portfolio. Independent traders executing sound trading strategies have access to all the analytical tools and investment research to potentially generate large profits on their own.
This piece was written by Troy Wellington, a freelancer who writes on finance, real estate, savings, international business & commerce, and other topics; to learn more about taxation, check out the History of R&B.
Image courtesy of Stuart Miles / FreeDigitalPhotos.net
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