Are you interested in trading the international stock markets? This is an activity which can grow and diversify your portfolio of investments and give you a greater chance to grow your wealth in the future. But before you get started there are several questions you need to ask yourself...
In this post, you'll discover the answers to these questions.
The first thing that pops into your head when you're starting out as an investor is the potential for making profits. You must never forget there are also risks involved in trading the stock market.
The first step therefore is to safeguard your capital. A stop-loss is a pending order to close your position, triggered when prices reach a certain level. Careful placement of a stop-loss order will allow for normal fluctuations in price while limiting the losses that could occur in the event that prices move against you. As well as managing risk, a stop-loss order can give you peace of mind to focus on other things.
Some traders place their stop-loss orders on long positions below significant lows on the price charts. Other traders use simple moving averages or indicators such as Parabolic SAR and Average True Range as a point of reference. So the way in which you use these tools will depend on your personal style of investing.
If you have an open position moving in a favourable direction, it is not always possible to sit and monitor the trade all day (or all night if
trading offshore). A stop-loss order gives you the freedom to step away from the screens, knowing that if the direction of the price trend turns against your position, the downside will be limited if prices hit the trigger point for your stop-loss order.
There is no textbook way to earn profits from financial markets. Some traders use technical analysis, some others make their decisions on fundamental analysis and there are those who combine both. All of them have this in common...
They have losing streaks every now and then.
So what's their secret?
They understand trading is a numbers game and they cut their losses short while letting their winners run.
Do you believe you have to be a genius to become a successful trader?
It doesn't hurt to be one for sure but is more important to develop discipline. Richard Dennis, one of the most famous and successful traders in history, developed a trading system with clear and concise rules. He believed anyone can learn to trade, and to prove it he conducted an experiment.
After selecting a group of people which he called "The Turtles" and teaching them the rules of his system, he gave them money from his own pocket and let them trade with it on the commodities market. The experiment was a success because the trainees traded with discipline and followed the rules of the system. So any system you decide to trade with must have these elements:
Once you've written down the rules of your system execute them with discipline.
This is one of the rules another investing legend lives by, Warren Buffet, also known as the “Oracle of Omaha”
Buffet once said that out of about 10,000+ publicly-traded firms, he would like to invest in only a few hundred companies – and that’s before even taking valuation into account!
Buffet cautions that you should never invest in a business that you don’t fully understand, and says he first needs to understand how the company makes money and the main drivers that impact its industry before investing. If he’s not able to understand it in 10 minutes, he moves on to evaluate another company.
The lesson here isn’t to miss opportunities but to understand them in order to make assertive decisions. Education is always the key, and if you can educate yourself and understand a company’s fundamentals, you will be better equipped to make investment decisions
Home country bias is a term used to define the natural tendency to limit investments within the investor's country of origin.
If you live in Australia you might be seeking investment opportunities with Blue Chip companies such as:
By doing this you might be missing good investments in the international share market and failing to diversify your portfolio.
When domestic shares move sideways or the whole market turns bearish, this risks the growth potential of your investment portfolio.
Diversifying into foreign stocks allows you to reduce this risk.
Monex Securities Australia offers:
Among other services. If you'd like find out more please feel free to fill out our contact form and we will be in touch with you soon.
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