5 Key Investment Strategies To Learn Before Trading

The world of trading can be somewhat arcane and fraught with risk – if you don’t enter it equipped with the right strategy. But even the best trading strategy might lead to disaster if it’s the only one you’re aware of. You might end up taking an approach that’s not appropriate for a given situation, or being blind to threats and challenges.

As such, it’s worth making yourself aware of several different investment strategies. Let’s take a look at five of the best of them.

Develop a Risk Management Framework

Trading of any kind confers a degree of risk. If you don’t have a way of identifying, quantifying, and managing that risk, then you might end up suffering in the long term. For example, you might make use of stop loss orders to help you deal swiftly with sudden market changes, of the sort brought about by unexpected changes in the Bank of England’s base rate.

Understand Diversification and Asset Allocation

If you put all of your eggs in a single basket, then you risk disaster when that basket breaks. You might distribute your investments across many different sectors, or even many different asset classes. Established FTSE 100 shares might confer less risk, and allow you to spread money across small-cap tech investments.

Master Technical Analysis Basics

You don’t need to understand the fundamentals of technical analysis in order to trade stocks. But this knowledge will allow you to be more sophisticated in your choices. You might interpret stock volume data, for example, to avoid common mistakes. You might also look for the patterns that indicate a given asset is about to ‘break out’ of its previous resistance level.

Embrace Fundamental and Macro Analysis

The more you know about the company you’re investing in, the better. But it’s easy to be overwhelmed with minutiae, if all you have to go on are reports generated by the company itself.

The right grounding in company fundamentals like dividend yields, and in macroeconomic factors like regulation and tariffs, can help to steer you in the right direction. Any good investment strategy should therefore involve specialised investment and trading education.

Practice Discipline and Emotional Control

Finally, we should touch upon a subject that has very little to do with the technical processes and terminology behind investment, and more to do with the contents of your psychology – and those of other traders. It’s easy to panic during periods of sudden change – and to be swayed by the panic you detect in those around you. This might lead you to make ill-disciplined choices that ultimately hurt your bottom line.

By making yourself aware of your own biases, the potential for illusion leading to bad decisions, you can protect yourself. You might also elect to plan for a range of contingencies, so that you’re not blindsided by sudden changes in the trading environment.