Starting out on the financial markets can be quite a challenge for inexperienced investors. There are thousands of instruments to choose from and dozens of major factors to consider that can affect your returns, which can be tasking for first-time investors.
While the initial experience may seem daunting, there are a few key principles investors can follow in order to maintain mental clarity and make the most of the investment opportunities presented to them.
Many popular investors are noted for saying that half of the challenge in investing is the mental aspect and the irrational emotions that lead many market participants to miss out on great opportunities and enter trades that lead to major losses.
There are many resources available for first-time investors to take advantage of. Forex investors that would like to practice basics and learn as they trade can read more at Axiory Trading Academy.
What investors need to consider when starting out
Making your first trades is typically the hardest for beginner investors. Mind games can take place and you may doubt your decisions a lot, which may even force you to abandon a potential position and enter another entirely.
In order to avoid such occurrences and remain focused and informed when making investment decisions, you can use a few principles as a roadmap to navigate the markets.
Never skip on research
This may sound like a no-brainer, but skipping proper research is more frequent on the financial markets than you may be aware of.
Especially if you are looking for a long-term investment, skipping market research is perhaps the biggest mistake you can make.
Read articles and new releases, macroeconomic updates, company news (if you are investing in stocks) and more to stay on top of the recent developments on the global financial markets.
Investment research may sound like a chore at times, but proper research can help you identify potential red flags in an otherwise appealing investment and save you a lot of stress and losses down the road.
Have a regular investing regime
If you are a recurring trader or investor, it would be beneficial to formulate a regiment that you follow when interacting with the market.
For example, you can make a plan that includes the following steps and answers the questions below:
- What sources do you use for research and how much time do you dedicate to research each day?
- What instruments do you invest in and how much are you looking to invest?
- What is the timeframe for your investments and when are you looking to close your positions?
Answering such simple questions can give you more clarity and provide structure to your research and investment process.
This also helps you manage stress and adds a degree of predictability to your investment strategy, which can be helpful in the long run.
Know when to close a position
Closing profitable positions late can be a massive issue for investors, as even with some of the best technical indicators, it can be difficult to discern where a particular market trend will end.
Therefore, it is important to know what to expect from an investment and how much unrealized gains are enough in order to prompt you to close the position and lock in profits.
It is not a rare case that the market turns before an investor is able to sell and renders the positions less profitable, or at worst – a losing one.
Investors who know how much to expect from a given position are less likely to overextend and more likely to remain profitable in the long run.
Understand your risk tolerance
Certain investments are likely to bring you much more stress than others and it is of paramount importance that you do not compromise your mental wellbeing for one of millions of possible profitable trading setups on the market.
In order to balance your mental outlook and avoid excess stress, it is advisable to determine what your risk tolerance is. Meaning, you should avoid entering positions that make you uncomfortable due to the inherent risk that comes with them.
You can do this by calculating the risk/reward ratio of your investments and arrive at a number that will serve as a threshold for your risk tolerance.
Once you have understood what your risk tolerance is, you will be able to narrow down your search for the right investments for your portfolio.
The biggest pitfall new investors should avoid
While many factors can influence the profitability of your investments, there is one major pitfall that many investors fall into, which can ruin the experience and lead to massive losses as well and that pitfall is – greed.
Overextending on positions can lead to unexpected shifts that could wipe out unrealized gains. Therefore, it is important to close positions that show substantial unrealized gains and look for new opportunities on the market.
Overextension is particularly problematic for traders who use leverage or short-sell instruments, which amplifies potential losses.
Managing greed and remaining conservative with your approach can be the difference between winning and losing investment strategies, regardless of which asset market you are investing in.