For people who want to make quick profits, online trading can be an excellent idea. It involves the buying and selling of shares to book gains from stock price fluctuations. This is a short-term strategy and is perfect for those individuals who do not wish to stay invested for a substantial period.
Now, as easy as it may sound, generating sustainable profits from trading can be a very difficult task. But there are some rules, which if followed, allow traders to conduct profitable trades. This article discusses some of them in detail.
8 tips to follow for profitable trading
Here are some tips individuals can follow to increase their profits from online trading:
- Always have an entry and exit plan
To successfully reap profits from online trading, traders need to have a proper entry and exit plan. They must decide beforehand on what price they wish to enter or exit a position.
By doing so, they can maintain consistent profitability in their trades and not get carried away, which can lead to losses.
- Make it a habit to use a stop-loss order
Using a stop-loss order is an excellent practice for new and experienced traders alike. It is a type of order, which automatically sells a stock when it hits a particular price. They come in handy when stock prices start falling suddenly.
Making a habit of using a stop-loss order for each trade will enable individuals to reduce the chances of incurring heavy losses.
- Perform technical analysis
Technical analysis involves studying the historical data and price movements of stocks to predict their future patterns. It helps traders understand how the demand and supply for a particular asset can affect its trading volume and price movements.
For this purpose, individuals can take the help of Bollinger Bands, moving averages, candlestick charts, relative strength index, etc.
- Invest according to one’s risk tolerance level
In online trading, it is not always possible to profit from every trade. Thus, experts always advise investing an amount of money, which one can afford to lose. This practice ensures that even in the case of a loss, the personal finances of individuals do not get affected, enabling them to recover and get back in the game.
Newbie traders can consider starting with small amounts. This way, even if they lose money, they can recover, learn from their mistakes, and increase their chances of profit in subsequent trades.
- Learn different trading strategies
The share market is ever-changing. Thus, using the same strategy will not work every time and can lead to losses. So, traders must always be open to trying out new strategies to adapt to the situation.
In this regard, they can learn intraday trading, delivery trading, momentum trading, gap trading, etc. and use the appropriate tactic when need be.
- Understand how the market works
To make profitable trades in the share market, understanding its nuances is crucial. But this can only happen when individuals have a clear understanding of how the market works. They must have patience and cautiously observe asset price movements during different micro and macroeconomic events.
By doing so, they can gain an understanding of how the market may react in a particular situation and make decisions accordingly.
- Take decisions based on facts and research
Now, when it comes to online trading, falling for rumours can be a costly mistake. Moreover, individuals often make buying and selling decisions based on what other investors are doing. This is called following the herd and it is a very risky practice.
It is risky because most of these people invest in hyped stocks depending on a whim and their decisions are not backed by proper research. Activities like these on a large scale can lead to panic buying or selling, which can cause a market crash, leading to losses.
Thus, look at the facts and conduct thorough market research before taking any decision.
- Opt for a broker with service low charges
Before individuals plan to open a Demat account along with a trading account, they must inquire about the service charges. Each broker has a different rate for them and opting for a platform with low fees can be beneficial.
This is because trading in the share market can involve several transactions within a single trading session. So, choosing a brokerage platform with lower service charges can help reduce expenses on the traders’ end.
Individuals can also opt for a demo trading account to practice trading before taking part in actual online trading. These platforms enable people to trade assets using virtual money. By doing so, they can get a taste of what they may face while doing live trades in the share market.
Additionally, this is an effective way of practicing new trade strategies, before implementing them in real life.
Read also: Take Control of Your Investments with Mutual Fund Return Calculator: A Comprehensive Guide
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