How traders can stay ahead of the market

Are you a trader who sometimes feels it is impossible to get an advantage; to be one step ahead of the market? For many traders, particularly newcomers, it can often feel as though everyone else is privy to information they are excluded from. It can be disorientating to watch your predictions fail and your hoped-for profit turn into loss.

But it need not always be like that. There are things that you can do to improve your trading and to get that elusive advantage. One place to start is to seek out advice, perhaps from articles like this or via a chat room for online trading news. Ultimately, to succeed as a trader, you have to start thinking like a trader. Here are seven tips to get you started.

Knowledge is power

The saying ‘knowledge is power’ is true in pretty much every walk of life, but it is particularly relevant when it comes to financial trading. If you are hoping to profit handsomely from your trading, as well as building up an understanding of the basic trading process, you will need to stay abreast of all of the latest news that affects the market, which includes everything from the Bank of England’s interest rate plans to the latest reports on the UK economy.

There is no replacement for doing your homework when it comes to trading, and this principle extends to studying individual stocks. One approach is to create a wish list that includes shares you may be interested in trading. You should also try to stay informed about the state of individual companies and markets, through reading financial and business websites.

Put money aside

Nothing ends a promising trading career more quickly than failing to set aside enough money. Even successful traders will have losing runs and it is important to plan your finances in such a way that you can stay afloat during unsuccessful periods. It is a good idea to put aside a surplus of money that will enable you to ride out any losses, and to decide on a level that you are prepared to invest in each particular trade.

Start small

For trading beginners, it is a good idea to start at a small level, by focusing on just one or two shares and making a handful of trades. You will find this much easier to track than if you have multiple investments, enabling you to build up confidence and skill. While starting small is good advice, you should probably steer clear of penny shares. Although they may seem tempting, they are usually illiquid, and offer very little trading opportunity.

Time your trades

Typically, many of the orders that have been placed by traders are executed as soon as the markets open, which can lead to considerable volatility early in the day. For experienced traders who can recognise patterns, this can provide trading opportunities, but newcomers are better advised to watch and monitor rather than getting involved. The same goes for the rush hours towards the end of the day’s trading. The hours in between are generally less volatile, and this is the best time for newcomers to get involved.

Cut your losses with Limit Orders

Before you start trading, you need to be clear about what type of orders you will be using. Market orders are executed regardless of price, while limit orders are not executed unless the price is matched. By using limit orders, you may take some of the edge off your potential profit, but you will be able to control your losses, and this will enable you to trade with much more precision, buying and selling only at the price you want.

Take a realistic approach to profits

Every trader wants to make big money, but the key to success is consistency, and this means regularly taking small profits that add up over time. Even successful traders only win up to 60 per cent of their trades. But the profits on their winners outweigh the losses on their losers. Chasing quick profits is a sure-fire way to fail, so stay patient and in control.

Stick to the plan

The best traders have to move fast to get the best prices, but it is a common misconception that they also have to think fast. In fact, traders who think on their feet tend to fail. Successful traders are able to act quickly, because they already have a strategy planned, they merely have to look out for the trigger opportunities to execute it. Having a solid strategy is far more important than quick reactions when it comes to trading.

Trading can be a great way to add to your income or to earn a significant amount of money if you’re skilled enough. By following the advice outlined above, you may be able to put yourself in a position to profit by staying one step ahead of the market.