Five Don’ts of Trading — Keep These Things Away

April 13, 2020

3 min

Table of contents

Here is a collection of 5 ‘Don’ts’ you, as a trader, should try to avoid. These tips can help both novice and experienced traders protect their funds and improve results.

1) Don’t spend everything you earn

Most people make a living, spend money on leisure and only then put aside the rest. Unfortunately, this way of accumulating funds is suboptimal when working towards a particular financial goal. What you can try doing instead is save first, invest second and only then spend the rest. Remember not to get too greedy though, leave yourself enough money to enjoy your life. Creating a savings account and accumulating funds there on a regular basis can be a good option.

2) Don’t underestimate the emergency savings

A lot of people keep a relatively small amount of money aside for “emergency money.” This may help you with a last-minute plane ticket, but it won’t help much if you get sick or something comes up unexpectedly and ruins your plans.

It would be great if you could accumulate 6 months’ worth of your wage in your emergency savings and only use these funds for real emergencies. When your income or expenses change, make sure to increase your savings amount accordingly.

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3) Don’t miss an opportunity to earn more

Remember not to stop after securing a well-paying job. There are always ways to improve yourself and your financial wellbeing — whether it is by the means of professional development, passive income accumulation or something else. An investment in yourself is one of the best investments you can ever make. Therefore, you should strive to acquire new skills and knowledge whenever you get a chance, especially when those are available for free.

People who challenge the status quo are also the ones who are more likely to be interested in the financial markets. They understand the risks involved, but by investing regularly, over time, they recognise the opportunity for long-term growth.

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4) Don’t make emotional financial decisions

Instead of randomly buying and selling assets based on the so-called gut feeling, develop a comprehensive trading system and create a trading plan with long-term goals.

As you probably already know, it’s not always easy to keep your emotions in check. And that is exactly why it is so important to have a decent strategy that prevents irrational trading. Put simply, a trading strategy is a set of rules for when it’s safe (in your opinion) to open a particular deal.

5) Don’t put all your eggs in one basket

Different asset classes behave differently and grow/depreciate at a different rate. It is true that by diversifying your portfolio you can miss a good chunk of profit when times are good. However, when times are bad, a diversified portfolio carries lower risk. Wealth that comes from several sources is usually more stable and reliable than one that relies on one resource.

What should you learn next? Turn the wheel to find out!

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