Getting into the trading business can be exciting if you know what you are doing. Before you start trading, it is advisable to take some time to learn how the markets operate and learn a couple of trading secrets. If you are launching out into the world of day trading, these secrets will help you gain valuable insight into how day trading works and what you should do.
Financial markets are the same as everything else in life if supply is low, and there are buyers, the price is bound to rise. On the other hand if there is abundance in supply, and no buyers, the price will drop. Anyone entering the world of trading in the stock market must be able to identify these entry points where supply and demand are imbalanced.
Stop Losses & Price Targets
If you are buying (known as going long), it’s important to know the amount of risk that is acceptable before placing the trade. Traders that assess their risk before placing a trade can place a stop-loss to get out of a trade in case it goes against you. It’s equally as important to set profit targets that are realistic. By doing so you will be in a position to take profits before a market turns when your emotions are high.
3:1 Risk Ratio
It is important for new traders in the stock market to understand the risk-reward ratio. This permits you to “win big and lose small” and end up a winner regardless of the possibility that you have losses on a considerable amount of your trades. Once you gain sufficient experience in trading, risk-reward ratios of as high as 5:1 or significantly higher may be achievable.
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