The best low-risk trading strategies for beginners—
The risk is an inherent factor in the financial markets; therefore, to completely eliminate it is just impossible. In fact, every activity involves some risk or another in everyday life. Take, for example, conventional banks with their seemingly bulletproof deposit schemes. Most people think that depositing at the banks is the safest method to hold money. The reality is far different than that. In the normal situations it might seem so; however, in the periods of financial distress, they are not. The underlying principle that makes keeping savings at banks secure is the collective agreement of people and hope. Hope that the next day will be better than today. However, if that situation is reversed, there will be a sudden increase of outflow of money from banks; therefore, banks might simply go bankrupt out of being insolvent.
Hope is the one that plays an important factor when estimating risks. As the saying goes, “no risk—no reward.” In trading, there has to be risk involved in order to yield some meaningful return. The question is how to make it so that the risk is justified and kept at a minimum, while the potential return is amplified as much as possible. This is the question that has been puzzling many traders, from retail participants to industry experts with majors from relevant STEM fields to some exotic names for the industry, like linguistics or philosophy.
In trading, two schools of thought have established themselves as the most dominant approaches to trading: fundamental analysis and technical analysis.
Fundamental approach
This method’s core idea is embedded in doing deep research of the underlying security’s financial health and the overall market situation that it is part of. For example, let’s take a company’s stock. The fundamental approach would mean analyzing the financial statement of the company. One will have to check the income statement and balance sheet and pay huge attention to industry metrics like price-to-earnings ratio, earnings per share, debt-to-equity ratio, sales growth, EBITDA, cash flow, and other financial indicators. Then, scrutiny of the annual and quarterly company reports in order to understand where the company is headed. It is also significant to follow what the company’s leadership says, what it projects, and what goals it wants to achieve. Are there any new products to release? Will there be a new acquisition? Have the dividends been increased or decreased? Apart from these factors, the overall stock market has to be analyzed too. Famous trader Steven A. Cohen once said that the factors behind the stock move are 30-40% company catalysts, 20% sector move, and the rest is the overall market health. If our company is a biotech one, then the biotechnology sector’s performance within the stock market has to be evaluated. Then, overall market performance too. Is the stock market index in a bull or bearish phase? What are the overall macroeconomic situations?
It can be deduced that it is all forensic research with fundamental analysis. Once a trading thesis has been built, and it is believed that the company is strong and the whole market is healthy, then it is a buy signal. If the company’s metrics, like PE, are low, while EPS is high, it might even bolster the decision to buy more.
Technical Analysis.
This market approach has to do with price formation. Whenever an asset is bought or sold, the whole process is done at a certain price. Prices change every day, every hour, every minute, and every second. In the modern world even nanoseconds matter in some of the liquid markets with the emergence of High Frequency Trading. Market participants tend to acquire the instrument at one price but might be hesitant to buy at another. The same dynamics apply to selling. Therefore, it means a behavioral factor is involved. This human behavior when people trade translates into patterns. Most well known are classical chart patterns. Chart patterns are divided into several groups depending on the visual and movement type. The most widely used are
-Reversal. Head and shoulders, rectangles, rounding bottom and top.
-Continuation: Triangles, rectangles, flags, peanuts, wedges,
Representatives of both schools sometimes tend to disagree with each other, delivering numerous historical examples when one system fails and another wins. The point here is not to overvalue one system over the other but to be alert and not complacent, taking into account the validity of both methods.
Risks
In order to minimize risk for beginners, a combinatory approach of both is considered wise.
Prior to every trade, a risk has to be calculated. If the technical approach is used, then it is visually easier to determine the level and when to get out. A safe approach is to limit risk per trade to 1% or even 0.5% of the total trading capital. Another aspect is to avoid leveraged positions whatsoever. Leverage is usually not advised for beginners due to the elevated risks it brings.
Please note that the above trading method is not investment advice; Forex trading involves complex risks that require a careful approach and due diligence.
for more visit shiboy
Where to trade?
After understanding how to trade, another question that is not less important is which broker to choose to trade with and how?
When choosing a safe broker, it is important to check the following:
-Longevity. For how long has the broker operated? The longer the time period it has been operational, the better for the broker. It shows legitimacy, solvency, and trustworthiness.
-Overall rating. It is a good idea to check reviews of the broker on the Internet resources. There are many famous platforms to check for them. One of them is Trustpilot.
-Platform choice. Does the broker associate itself with the leading trading software provider, MetaQuotes company? If so, it signifies the legitimacy of the broker. Perhaps, the broker might have its own trading app. This is also a good sign.
-Overall legislative nature. Has the broker been dragged into juridical disputes? Here it is crucial to ensure that the broker must be clean when it comes to legal disputes.
-Customer Support feedback. One might overlook how a broker maintains customer support service. If a CS team is well aware of the trading terms, understands questions well, and responds in a timely and professional manner, then it is another proof the broker is on the legit side.
