Four Tips to Become a More Advanced Trader

Jack Kelly, Head of Sales, Vantage Markets, Australia

More and more Australians are trying their hand at trading¹. Technology has opened up financial markets, enabling people to research assets and control their investments on the go, while the proliferation of cryptocurrencies brought in new audiences who would never have considered trading before. These forces have meant that more people than ever are determined to control their own finances and build income streams that will enable them to pursue their life goals.

Done well, trading is intellectually and financially rewarding. But high interest rates and high inflation are heavily impacting corporate earnings and their share prices, while also disrupting trends in commodities and currencies. This makes it very difficult for traders to locate the right assets at the right price in order to create healthy supplementary revenue streams for themselves.

Moving up from being a novice trader to an intermediate one takes time and effort. Traders have got to be willing to learn about technical trading strategies, understand macroeconomic forces and how these impact pricing, then structure diversified portfolios and develop the discipline to stick to a pre-determined risk profile.

Starting this process from scratch can be daunting because there is an infinite number of possible approaches to trading. However, there are a couple of key places to start that should help ambitious investors. These are the tips I wish someone had given me when I started out as a trader:

1. Manage trade size

One of the most important tips for retail traders is to size their trades correctly. That is, sizing the amount that they are investing relative to their equity. Getting caught out on the wrong side of a trade when they have invested too much, will limit your ability to enter into new trades.

2. Be disciplined on stop loss / take profit levels

Having clearly defined ‘stop loss’ and ‘take profit’ levels is important not just because it protects your equity but also because the discipline of setting these levels mean you are beginning to understand relationship between risk and reward, and, ensuring you only execute trades that match your risk profile.

Trading losses will frighten many amateur investors but if you are still within your accepted range and the market conditions have not changed, there is no need to panic. Equally, selling at the top of your range, or when you believe a trend has played out, means you have now developed the discipline to see your position mature and then move on to other trades.

3. Use price action to guide you

Identifying trending versus range bound markets is critical to understanding relationship between the market price and its historical price action. Your ability to identity which market environment is in play will determine which strategies you implement, how you define risk and, help set price targets with more confidence.

Balancing long and short-term price trends is just as important. A top-down approach to price analysis means reviewing price in monthly, weekly and daily time frames to identify longer term price trends. Shorter time frames such as 4hrs, 30min and 15min are used to identify favourable entry and exit price points. Analysing price action across multiple time frames will also help you identify price patterns such as the ‘head and shoulders’ or ‘symmetrical triangle’ which can be used as further confirmation of your trade idea.

4. Specialising will save you time

Modern technology has made a wide array of trading assets accessible to the retail trader, which can be daunting for new traders. That is why the best way to start is with a narrow focus on a few instruments that you are most familiar with and build your trading strategy from there. Understanding technical strategies and the psychology behind price movements is also critical, but it can be built up more effectively when you are specialising in the same few assets. Find a way to engage in the markets a little bit every day, in a manner that matches your lifestyle. Over time, your knowledge will grow and so will your confidence.

More and more, people want to take control of their finances and build an income outside of their regular salary in order to fulfil life goals. Trading is a great way to do this, but it takes time and discipline. Being aware of these principles is a good place to start though for any investor looking to become a more active trader and take advantage of something they have spotted in a turbulent market.

¹ Based on data from ASX Australian Investor Study and Investment Trends Report

Vantage Global Prime Pty Ltd (“Vantage”) (ABN 32 157 768 566) is authorised and regulated by the Australian Securities & Investments Commission (ASIC) AFSL no. 428901. 

Disclaimer: Vantage doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information provided here, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. We advise any readers of this content to seek their own advice. Without the approval of Vantage, reproduction or redistribution of this information isn’t permitted.