Portfolio Optimization: Invest Logically to Ensure the Highest ROI Do you want to know more about Portfolio optimization and how […]

One of the most common ways to protect yourself in the marketplace is to have a stop loss on each trade. This of course is something that you should always do, as we have to protect our trading capital first and foremost, as it is without a doubt the most important thing when it comes to becoming profitable. This of course is basic knowledge, but there is an alternative to placing a hard stop loss, as many people use trailing stop losses. Trailing stop losses function initially like a normal stop loss, meaning that once a certain price gets hit, the broker knows that it is to take you out of the market out of the best price possible. This minimizes losses, and protects the trader from sudden moves. However, the trailing stop loss allows you to dynamically change the level of the stop loss as the trade progresses. In a nutshell, what the trailing stop does is follow the movement of the actual trade. An example would be if you have a 30-point stop loss, and the market falls below that level, we will be taken out of the market. However, as we continue to grind higher, the stop loss moves up with the gains of the trade. In other words, if the market rises 50 points, the stop loss moves up 50 points, offering a stop loss at a gain of 20 pips. However, when markets pullback, the stop loss sits still. In other words, it is very similar to an object on a string, as it needs to be taught in order to be moved. That’s very similar to how the stop loss works.

Paper trading, or using a demo account, is the first step in learning how to trade. After all, you have to be able to know whether or not your even capable of making money in the markets before you can risk any significant amount. By using the demo account, you have the ability to take risk without actually risking any money. This of course is a big deal, as it gives you the opportunity to trade various systems or methodologies and see how they work out. Most professional traders have paper trading accounts most of their lives. They are constantly looking to improve their returns, and as a result they are normally trying new methodologies for indicators or other such things. A demo account is the perfect place to do this because you have absolutely no real risk. Most brokerages offer demo accounts, and it’s very rare that you will find one who doesn’t. In fact, as a general rule you should probably avoid the shops, as it’s a very basic thing to ask. Quite often, traders will use a live account simultaneously to trading a demo account, as the one great thing about trading is you will never know everything. There is always something new to learn.