Without a doubt, day trading is one of the most profitable ventures one can get into. It is also the riskiest venture. For experienced traders, forex trading is not only profitable, it is also a fun exercise because of its dynamism. It is also one of those ventures where you learn a new thing on a daily basis. New inexperienced traders hate it. This is partly because they have an idea of how much money people make. Another reason for this is that new traders lose significant amount of money when starting their ‘careers’.
Since this is a new challenge many people go through on a daily basis, solutions to mitigate it have been found. Automated trading platforms and social trading platforms enable any person to copy trades from experienced people.
In automated trading, companies offering the service have created algorithmic codes which initiate and stop trades. The programmers of these automated trading platforms are experienced traders and computer programmers who base their algorithms on various technical indicators. As a new trader, your only role will be to deposit your money, set your trading preferences, and then the platform will do the rest.
In social trading, a trader deposits money in a trading platform and then identifies traders who have a good reputation. Then, the trader will copy the traders to replicate what the trader is doing. One of the premier social trading platforms was eToro. Today, many brokers offer these services.
In automated and social trading, it is possible for a new trader to benefit from the experience of the existing trader. However, it is possible for a trader to lose a significant amount (or all) of his investment. For this reason, a lot of care should be put in place.
When using either the social trading or automated trading, the first thing a new trader needs to do is due diligence. This entails taking time to find a good platform that charges less fees and one that has a proven history of making good gains for the investors. If using the social trading strategy, one needs to find a trader that is credible and one who has a good reputation. This will prevent you from being exposed to risks.
Understanding the basics
As a trader, your goal should be to learn and understand how the market works without the automated trading systems. This will give you an edge in understanding how the market works. Most importantly, it will help you learn how to control your account and mitigate risks. Some of the most important details you need to know include: technical analysis, fundamental analysis, what the currency pairs mean, risk management, and how to exit the trades.
In technical analysis, you need to understand a number of key technical indicators and how they work. For instance, you can decide to learn and understand: one trend indicator, one momentum indicator, volumes indicators, and a few key indicators such as stochastics. In fundamental analysis, you need to understand how to assess the global economic environment. This will give you an idea on how the macroeconomic and specific microeconomic factors are performing. While you are not trading yourself, having this information will help you be informed.
Another key aspect about automated trading is risk management. As I have explained in the past articles, the financial market is always uncertain. No person, including the most experienced traders know what will happen in the next minute. Earlier this month, many experienced analysts from leading firms were certain that the fed would tighten the monetary policy. They were wrong. In addition, on a daily basis, many analysts’ forecasts are missed or beat. Therefore, it is very important to have a good risk management strategy to ensure that you don’t lose a significant amount of money.
Using automated trader is an easy method of making a lot of money for new traders. However, it is also one of the easiest way to lose an entire investment. Before committing any amount of money in this, you need to carefully learn the system. In addition, you need to allocate capital that you can lose and have no impact on your financials. Finally, you need to constantly have a look at the trading and when need be, exit a trade that is on a losing streak.