Online trading is an exciting, constantly evolving space. If you invest smartly, you stand to bring in significant earnings. However, as with all trading, every move includes some element of risk. If you can calculate that risk and implement mitigation strategies, you might just come out on top.
This article from SignalxChange walks through safe trading practices, highlighting seven ways to reduce risk in online trading. Let’s get to it.
1. Open Small Trades
Taking a conservative approach is a simple way to reduce risk in your online trades. The most popular minimal-risk strategy is to open small trades. Opening small trades limits potential loss if the market doesn’t go your way. If you’re new to trading and still learning the game or don’t have the resources to invest in one big trade, you can divide your capital into smaller trades.
Position sizing smaller trades allows you to diversify your investments and build resiliency into your trading strategy. If one trade doesn’t do well, you can still profit from the others.
Small trades can also allow you to explore different strategies without putting all your eggs in one basket. You can learn what works best for you, which market and traders you want to follow, and how to adjust your approach as you go along.
Opening small trades allows you to take responsible steps into the online trading world, mitigating your risk and exploring ways to maximize your earnings.
2. Avoid Emotional Trading around Big Announcements
Online trading is equal parts science and strategy. And while following your intuition might be appropriate—and even helpful for other decisions—emotional trading is risky. Data-based decision-making allows you to reduce risk and conduct trades based on concrete evidence.
Emotions are fleeting and can change instantly. But when you make trades according to historical performance and current data or copy from the trades of proven traders, you’re not relying on your intuition alone, which could lead you down the path of loss!
Another must for risk mitigation is to avoid trading around big announcements. Markets change, and significant announcements and statements can affect the risk of your trades. It’s practically impossible to predict how a significant announcement will influence trades. The more variables associated with your trade, the greater the risk.
3. Implement a Stop Loss
Incorporating “fail-safe” tools in your trading practice helps you maintain control of your trades even when you’re not actively monitoring them. Implementing a stop loss reduces risk in online trading and ensures long-term resiliency in your portfolio.
A stop loss is a tool that allows you to stop a trade automatically when it reaches a predetermined level. You can set these levels based on the level of risk you’re comfortable with.
Stop loss is especially helpful for long-term trading. It allows you to move sharply in either direction and prevents you from unknowingly exceeding your comfort level. When you’ve got a stop loss, you minimize your risk and the impact of a trade that doesn’t go as planned.
4. Never Trade without a Plan
No one goes on vacation without a list of items they want to discover. If you didn’t, you’d be wandering around aimlessly and wasting money while you do it. The same goes for trading. Every trading decision should be executed within the framework of a larger plan for your portfolio. Creating a proper trading plan helps you stay focused and make rational, guided decisions. Impulsivity doesn’t always work out well…
Deviating from your plan is a slippery slope and can have some pretty detrimental consequences. Whether you build a custom plan, focus on copy trading, or a mix, determine what trading will look like for you and stick to it.
5. Don’t Get Too Comfortable
Sometimes, the most significant risk to your trading success is your ego (someone had to say it). If you’ve had a solid run with a few trades, you might become overconfident and let your guard down, increasing the size of your positions or deviating from your trading plan.
Don’t ever get too comfortable in online trading. Doing so increases your risk of careless trades, oversights, or trading outside of any parameters you might have set for yourself.
6. Understand and Focus on Correlations
Understanding correlation is crucial in online trading. Correlations show how various trades are connected. When making trades, you’ve got to do your research to ensure you’re making trades that deliver a profit.
Correlations between assets occur within all asset classes, including stocks, bonds, and currencies. Understanding correlations among your trades empowers you to make smart investments and reduce your risk along the way.
7. Learn from Seasoned and Successful Traders
Traders’ greatest risks often come from a lack of education, experience, and market understanding. The more knowledge and experience you have, the better you can manage and mitigate your trading risks. Learning from seasoned, expert traders is perhaps the most effective way to learn the market, build a trading plan, and reduce your risks in online trading. A great place to start is with copy trading.
Copy trading is ideal for new and established investors to trade safely. By mirroring trades from proven, consistent, high-yield investors, you position yourself for successful trades and minimize the risks of entering the game alone.
At SignalxChange, we empower traders with the collective knowledge, expertise, and education of investors thriving in their trades. Our online community allows you to connect with new traders, those who are experts, and everyone in between.
Continuous learning within the context of an active trading community mitigates many risk factors associated with online trading, helping you make smart, earnings-focused moves, and trade safely!
Reduce Risk and Earn More with SignalxChange
Online trading is a moving target. You’ll never master it, but you can educate yourself and mitigate risk to help you make profitable trades and see long-term success.
When you join SignalxChange’s online platform, you can access unlimited data, education, and potential within the trading community. You can have a successful portfolio only if you actively mitigate risk. Connect with us today and watch your profits grow within a modern investing community.
