Trade12 - Are Successful Traders Made or Born to Become One

Trade12 Review Blog – Are Successful Traders Made or Born to Become One?

There had been a number of heated debates to determine if successful traders are made or born to become one. Let’s take a professional pianist for example. A child is not born with the talent for playing piano; instead, the child trains, studies, and practices in order to play beautifully. Although this metaphor is not the same as a successful trader, it gives us a hint of how successful individuals come into existence.

Trade12 - The Turtles Experiment

The Turtles experiment

In the past, there were 2 men namely William Eckhardt and Richard Dennis, who were involved in a debate on whether successful traders are born or made. Eckhardt believed that becoming a successful trader comes from within and it cannot be taught, while the latter argued that anybody can become a successful trader with enough education and practice.

In order to prove their theories, they made an experiment involving 21 men and 2 women without prior trading experience. Dennis spent 2 weeks to train the recruits which he named “Turtles”. For 2 weeks, he taught them about a simple trend following system, trading different commodities, currencies, and bond markets, buying when prices increased above their previous range, and selling below their previous range. They were taught different techniques in cutting loses and maximizing profits.

After their training, they were given a month of trial trading period. After the trial ended, Dennis gave each of the recruits who showed a successful performance a trading account ranging from $250, 000 to $2 million from his own money.

Five years later, the Turtles reportedly earned a total profit of $175 million. Take note that these people are all beginners in the market before they started with the trading. This experiment is just a living proof that a successful trader is made and is not inborn.

Trade12 - What Does it Take to Become a Successful Trader

What does it take to become a successful trader?

Although one cannot succeed in trading without access to the proper resources, through the experiment, we can conclude a few pointers. Trading requires knowledge, perseverance, patience, and discipline.

There are a lot of people who simply want to throw themselves into a den full of lions by trading without proper training. Preparation makes the difference between trading and gambling. That is why demo accounts are important in shaping a beginner’s mind and strategies. Research is another key to gain the required knowledge.

Perseverance is also required as it is unavoidable for beginners to experience a few losses at the start. One needs to learn how to stand back up again after falling a few times.

The market doesn’t shoot straight up or stumble at an instant in a single day. Some trends tend to have a long span and minimal movements so patience is needed in order to make significant profits.

Discipline is one of the cores. You need discipline to stick through your trading rules and strategies. It keeps you from swaying far from what you planned in the beginning and become a systematic trader.

Read about the importance of following a trading plan.

Conclusion

Everyone should stop believing in the notion that becoming a successful trader is innate. Instead, they should focus on shaping themselves and training to become one. Whatever a person sets in his mind, he should keep with it and persevere until he reaches his goal. It is nurture, not nature that is essential in the making of a successful trader.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker that offers tight spreads, flexible margins and high leverage. Read about Trade12 reviews to ensure you trust only the best. Register an account now and enjoy a wonderful trading experience!

Trade12 - Backtesting Your Trading Strategies

Trade12 Review Blog – Backtesting Your Trading Strategies

It is a common practice to apply some strategies in trading in order to increase the chances of becoming successful. There are various strategies to choose from, yet there is no proven one that is applicable for all kinds of trades. How can we even be sure that these strategies are profitable for us? What are the ways to proving gainful strategies? In this article, we would talk about a technique in testing trading strategies called backtesting.

Trade12- What is Backtesting

What is backtesting?

Backtesting is the process of testing a trading strategy based on past data to ensure that it is profitable. Backtesting software can be reconstructed with different situations to test the strategies’ effect in various conditions.

It gives out statistical results that can be used to determine the effectiveness of the strategy. If the results meet the set criteria, then the strategy is deemed viable. But if it ends up lacking in some parts, then it can be modified and adjusted to achieve the desired results.

The idea of this test is if a strategy has worked in the past, then it has a great possibility to also work in the future. The key is to test it out on all possible conditions that are likely to happen again later on.

Nowadays, a huge number of traders are opting to use computer automated strategies. To ensure the viability of these strategies, backtesting became an integral part of developing an automated trading system.

Trade12 - Significant Backtesting Data

Significant backtesting data

There is a lot of backtesting software available on the internet that can be used to analyze strategies. Most of which can be modified to meet some conditions. A backtest should involve enough data to get acceptable results. For example, the duration of the sample time should be long enough to include periods of varying market trends. The sample size to be tested is also crucial because including only a small portion may not be statistically significant. Thus, backtesting should be optimized well in order to avoid making false conclusions.

Analysts should also take into consideration the gains and losses made throughout the whole time frame, the exposure or the percentage of the capital invested, wins-to-losses ratio, and the percentage of return over the course of the strategy.

Why is it important?

It is easy to pick a strategy or apply someone else’s strategy on our own trades, but we can’t expect them to work just the same as theirs. All traders have different preferences, trading lifestyles, and decisions. Backtesting, if implemented and applied properly, can help traders improve their strategies to become more profitable. That’s why it is important to apply a strategy that is drafted only for you.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker that offers tight spreads, flexible margins and high leverage. Read about Trade12 reviews to ensure you trust only the best. Register an account now and enjoy a wonderful trading experience!

Trade12 – Understanding the Basics of Options Calls and Puts

Trade12 Review Blog – Understanding the Basics of Options: Calls and Puts

There is no assurance of profits in trading. There may be a lot of precautionary measures and strategies to make, but there is still no guarantee to totally eliminate the risk of losing. Recently, we have talked about some hedging techniques to lower investment risks. We have tackled hedging through derivatives, which involves the use of put options. But what are put options? In this article, we would expand our knowledge about put and call options.

Options

An option is a form of a derivative. A derivative is a security which price is dependent upon another asset. An option is a contract, or a provision of a contract, that gives the holder the right, but not the obligation, to make a specific transaction with the issuer according to a certain condition agreed upon the contract. However, this contract comes with a certain fee that is multiplied with the number of assets it would cover. This price is called a premium.

Trade12 - Options

Put options

A put option entitles the holder the right, but not the obligation, to sell an asset at a specified price which is also known as the strike price. On the other hand, the seller of the put option is obligated to buy the stock at the agreed price. A put option can be used any time before its expiration date.

An investor buys a put option because he speculates that his stocks will fall at a later date. In order to secure his profits, he buys a contract that locks in the price of his assets so when the time comes that his stocks drop in price, he can still sell them at the specified price.

The seller of the put option is obligated to buy the assets at the specified price if the contract is used before its expiration date. However, if the contract hits its maturity date and the buyer do not use it, the seller gets to keep the premium paid for the options.

Call options

A call option grants the holder the right, but not the obligation to purchase an asset at a specified price for a certain period of time. If the stock price does not meet the strike price within the duration of its validity, then the contract becomes worthless.

An investor buys a call option if he predicts that a stock will increase in value. Once the strike price is hit, he has the option to purchase the stocks at any time within the duration of the contract at the specified price.

As with the seller of put options, the seller of the call options is obligated to sell the assets to the buyer at the strike price once the contract is used. But if the contract expires before the buyer uses it, the seller gets to keep the premium paid for it.

Understanding the gains and risks

The relationship between the seller and the buyer of options is like a zero-sum game. Only one will gain while the other loses. The only difference is the limit of the gains and risks they are exposed to. The buyer of the options can only lose the maximum amount of the premium he paid for the contract, while the seller can lose the whole amount of the strike price multiplied to the number of assets involved in the contract.

Conversely, the buyer of the options can secure his profits, even when the market is falling, or maximize his possible gains when the market increases since he can buy at a lower cost. On the other hand, the maximum gain that the seller can get is only the premium paid for the contract.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker that offers tight spreads, flexible margins and high leverage. Read about Trade12 reviews to ensure you trust only the best. Register an account now and enjoy a wonderful trading experience!

Trade12 - Hedging Techniques to Lower Your Investment Risks

Trade12 Review Blog – Hedging Techniques to Lower Your Investment Risks

There is no such thing as “free lunch” in investing. There is always an equivalent risk in every investment. There is no way to totally eliminate this risk; however, we can integrate some techniques and strategies to at least lower them in order to raise our chances of securing a profitable investment.

What is a hedge?

A hedge is an investment position intended to reduce the risk of potential losses of an investment. Hedging is often thought as an advanced investing strategy, but practicing it is a very effective way of lowering the impact of losses in a portfolio.

We can think of hedging as similar to an insurance policy. When people buy a car, they usually open an insurance plan along with it. This doesn’t prevent any bad event to happen to the car, but it reduces the possible impacts if it occurs. This safe plan doesn’t come without a cost. The car owner pays monthly for the insurance plan, even if the presumed bad event does not come. Despite that, people still choose to have a backup plan than going through a big loss when something bad happens and they’re unprepared.

Read more about the importance of financial investing.

Trade12 - How Do You Hedge

How do you hedge?

Let us consider this scenario: You bought 100 shares of an automobile company which we will call company ABC. An automobile company performs well as long as the economy is flourishing. But we cannot be assured that it would perform just as well if the economy goes through a recession.

Hedging through diversification

In order to hedge from this potential risk, you can opt to buy defensive stocks. These stocks are composed of any products that are considered as basic necessities. During economic recessions, these stocks tend to gain or at least maintain their value. Thus, if you buy another 100 shares of company XYZ, which sells canned goods, then these stocks might gain in value even when your stocks with company ABC lose.

Hedging through derivatives

Another way to hedge is by purchasing put options for your shares. For example, your stocks with company ABC are currently worth $20. You are afraid that there is an incoming recession and you want to secure your profits, so you bought a put option to sell your stocks at $20 each no matter what happens in the future. This put option is a contract that gives you the right, but not the obligation, to sell a security at a specified amount within a fixed period of time. Thus, if your stocks suddenly dropped to $15 each, you can still secure your profits from the put option you purchased by giving you the right to sell your stocks at $20 each.

Trade12 - Importance of Hedging

Importance of hedging

Hedging is a very important technique to protect your investments from unforeseen negative events. It is all about decreasing the impact of losses in order to help protect your portfolio from uncertainty. Although it comes with an additional cost, it is still worth the benefits it can give if it could secure you from a rather greater cost.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker that offers tight spreads, flexible margins and high leverage. Read about Trade12 reviews to ensure you trust only the best. Register an account now and enjoy a wonderful trading experience!

Trade12 - Comparison of Active and Passive Investment Approach

Trade12 Review Blog – Comparison of Active and Passive Investment Approach

There had been a significant increase in investors from the past years. Each of these investors has their own different techniques on how to conquer the market. However, there are 2 major investment approaches: active trading and passive investing. In this article, we would discuss about the difference of these 2 approaches and which one of them is more appropriate for you.

Trade12 - Active Trading

Active trading

Investors of this kind are the ones who prefer to make money fast by taking advantage of short term price fluctuations. They usually read everything about investing, study the stocks and their trends, and subscribe to newsletters and magazines in order to be updated on the latest market news. They also regularly read financial statements, economic analysis and reports.  They treat investing as a passion, hobby, or even a career.

Active traders usually prefer stocks that are rising and promises accelerated earnings, presumably from newly discovered products and innovations. They don’t hold on to stocks for a long time, rather they seek to buy and sell stocks with the intention to make money from short term price movements. They can be associated with “day trading” as they usually make multiple trades during a single day.

The good thing about active traders is their ability to hedge on losing trades by short selling and other strategies. They also practice risk management as they can easily get out of investments when the risks start to get out of hand.

Although active traders have the potential to make money quick, they are also subject to losing just as well. The hardest part of being an active trader is the emotional challenge it brings, since it involves gaining and losing money often, resulting to undisciplined transactions without following a strict trading plan.

Trade12 - Passive Investing

Passive investing

This type of investing aims to maximize returns on the long run by using a “buy and hold” approach. Passive investors usually create a plan, researches for growth stocks, invest their money, and then patiently wait for some years until their stocks make a significant return in the future. The idea of passive investing is not to make quick gains, but rather to build slow, steady wealth over time.

Passive investors believe that by simply waiting, they can overcome the ups and downs of the market until they can settle on higher returns. They rely on the fact that despite of some crashes in the market; it has always gone back up over time.

When done correctly, passive investing can bring a lot of profits, possibly even multiplying their initial capital, rather than a series of small gains. It also eliminates the emotional problems that comes with having to check on the market everyday as temporary downturns in the market has little to no effect on passive investors.

However, the challenge in passive investing lies on recognizing growth stocks – stocks that will make consistent increase of value in the future. Even though passive investors don’t monitor the market often, they still need to periodically re-evaluate the performance of their stocks and have the presence of mind to respond to long-term market changes.

Trade12 - Which One is For You

Which one is for you?

Choosing which investment approach to take depends on your personality and preferences. Those who are eager for quick profits and would like to generate fast income, no matter how small the gains, are more inclined to become active traders. While those who prefer to save up for retirement or generally want to purchase more expensive luxuries in the future should opt for passive investing.

Learn more about the importance of financial investing.

Conclusion

No matter which investment approach you choose, make sure to stick to your plans and follow initial strategies. For active traders: do not get your emotions get in the way; while for passive investors: ignore the temporary downturns in the market. Keep yourself disciplined and you’ll be able to harvest your profits in no time.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker with years of experience in the field. Register an account now and enjoy a wonderful trading experience!

Trade12 - Short Selling Against the Market

Trade12 Review Blog – Short Selling Against the Market

The ultimate goal in the buying and selling of stocks is to make money from them when the trend rises. But what would happen if the trend reverses to a decline? How could investors make money from this phenomenon? In this article, we would talk about short selling and how it works.

Trade12 - What is Short Selling

What is short selling?

Short selling is a trading strategy wherein traders seek to make money from the belief that a stock will decline. It is the sale of a security that is not currently owned by the seller, or more simply put, borrowed from a broker. It aims to immediately sell the stocks at their current price, then bought back or covered at a lower price to make profit.

Short selling is led either by the speculation that the market will decline or by the desire to hedge the downside risk of a long position. There is a misconception that short selling is done with the intention to put companies into bankruptcy. The truth, however, is the other way around. Short selling actually facilitates smooth functioning of the markets by providing liquidity, it also acts as a restraining influence to avoid overvalued stocks and assist in stock value correction.

Trade12 - How Do You Short Sell

How do you short sell?

Long term investments usually follow the conventional principle of buying low and selling high. It is also the same as with short selling, with just a minor difference. It initializes selling high first, and then waits to buy at a lower price. The short seller then generates profit from the difference on the price when the stocks are sold and when they are bought back.

Let us consider the following example:

A trader speculates that stock ABC would decline in value. It is currently priced at $20. The trader decides to borrow 1000 stocks from his broker, who in turn looks for stock sources – either from his own inventory, a client’s portfolio, or from other brokers. The stocks he borrowed are then immediately sold at their current price and the proceeds will be transferred to the trader’s account amounting to $20,000.

After a week, stock ABC falls to $15. The trader decides to close the short position and buys 1,000 shares of ABC at $15 each on the open market in order to replace the stocks he had borrowed. To sum it up, the trader has made a profit of $5,000 from that transaction, excluding the commissions and interest that he owes the broker.

Now, what if the trader’s speculation did not happen and the stock price increased instead? Let’s take for example that after a week, stock ABC shot up to $30 each. It so happens that the original owner of the stocks has demanded his shares back. The broker has no choice but to close the position of the trader. The trader’s loss has now amounted to $10,000 (($30*1000) -$20,000), excluding the commissions and interest that he still owes the broker.

Trade12 - Risks of Short Selling

Risks of short selling

Taking from the example above, we may understand the huge risks of short selling. In a normal investment, the biggest loss that an investor can have is only equivalent to the amount he used to buy his stocks while his biggest gains are theoretically infinite since nobody can tell up to what value the market can rise up to. It is the opposite in short selling, because the biggest gains of a short seller can only be equal to the amount of the stock when sold, while his biggest loss is theoretically infinite – the short seller’s loss is parallel to the market value of the stock as it increases.

Conclusion

Short selling is considered as a very dangerous strategy because of the market’s volatility. No one can really speculate if the trend is going up or down. However, skilled traders and investors find this strategy profitable and practical when done right. Always remember that the best way to beat the market is by establishing enough knowledge and learning the fundamentals so as to avoid being run over by the market’s unpredictable trend.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker with years of experience in the field. Register an account now and enjoy a wonderful trading experience!

Trade12 - Beginner's Guide to Making Money through Online Stock Trading

Trade12 Review Blog – Beginner’s Guide to Making Money through Online Stock Trading

The idea of making money online, inside the comforts of your home, and not needing to put a lot of physical effort is very tempting to do. Many people have the misconception that online stock trading is simply generating passive income, but it is far more from that. Investing in stock trading is very profitable, that is, if you understand how the market behaves and knows how to play along with it. In that case, it can be a great way to ensure you make money from what you currently have, instead of simply putting it in the bank where there is no significant returns. Here are the basic steps to make money through online stock trading:

Trade12 - Make money through stock trading

Choose your broker

Find a reputable trading broker site. In this step, research is the key. Look for online trading reviews about the brokerage site you would like. Read client feedback and make sure you only invest in a trustworthy broker.

Add funds to your investment account

After you have chosen your broker, you then proceed to register an investment account. Most brokerage sites offer different account types based on the amount of initial capital you would like to deposit. To play it safe, you can deposit the minimum amount just so you could try the reliability of your broker and the efficiency of your trading strategy. However, if you already have a solid choice of stocks, you can deposit enough capital to buy the required lot size of the stocks you want to invest in.

Choose and buy your first stocks

The market is very broad, so choosing stocks can be a difficult decision to make. Just a tip: choose stocks from a dominant and known company. Check on the company’s financial history to ensure that their stocks would be profitable. Make sure that the stocks you choose would be for a product that you know many people would consistently buy. For starters, buy only a small number of reliable stocks, but of course it depends upon your capital.

Monitor the market

Stock trading doesn’t stop after you buy your own stocks, you should keep on monitoring the market to make sure they are always in a profitable favor. Do not forget to set a stop loss to make sure you have full control of your assets. This is important so that you won’t lose more than what you can afford to. Keep your head up in the game. If you want to make consistent profits, do not just stay in a stock or two. Continue looking for profitable stocks to expand your assets.

Choose between cashing out and reinvesting your profits

You can always cash out your profits, but also consider the possibility of reinvesting them. That is the key to making consistent money in stock trading, especially if you are interested in making it a career or your main source of living. Just make sure that you can monitor each asset even if you invest in a lot of stocks.

Trade12 - Monitor the stock market

Need help in choosing a broker? Read more about How to Choose an Online Broker.

Bottom line

Stock trading is a cycle. Continuous research is the key to get the upper hand. As profitable as it may seem, however, it also poses a great risk. You can easily lose money if you don’t educate yourself, especially with all the financial trading experts out there. If you are one of the persistent and hardworking people who can dominate the market, then this career can be very rewarding for you.

Looking for a reliable online trading broker? Look no further than Trade12! With their tight spreads, flexible margins and high leverage, you are sure to get the satisfaction you are looking for. Register an account now and start trading with Trade12!

Trade12 - Importance of Following a Trading Plan

Trade12 Review Blog – Importance of Following a Trading Plan

There is a golden rule in trading which goes “Plan your trade, and then trade your plan”. A house won’t be built without an initial floor plan. It would be like buying random building materials without knowing where you would actually use them. It’s also the same with trading. You don’t simply enter and exit a trade whenever you want to. You should have guidelines that would indicate the right timing to make a certain action. This is what you call a trading plan.

Trade12 - Road Map

What is a trading plan?

A trading plan doesn’t really differ a lot from other plans you can imagine. It is more like an outline of your activities, something like a to-do-list in trading. By definition, trading plan pertains to a set of guidelines to define your trading activity. You think of it as a road map. It shows a route which you need to take from where you are and to where it leads. Metaphorically speaking, it gives a clear picture of your journey. It does not need to be a complex system. It would only provide you the basic guidelines of what you need to do.

What do you need to put on your trading plan?

There is no exact standard of what you need to put on your trading plan. However, a typical trading plan contains certain important elements. These include your profitability goals, position sizes, how to manage these positions once you’ve taken them, and a criteria of when you will enter and exit a trade. These elements are not constant. They should be adjusted in each of your trades in order to meet their varying market conditions.

Why do you need a trading plan?

Overall, a good trading plan will help you identify your goals, manage your emotions and trading risk, and help you decide when to take action. The most common mistake of traders is following their emotions. These emotions, when challenged, tend to betray a trader. Having a standard to follow helps in controlling the decisions made from emotions by sticking to the initial plan. It helps to keep the trader in the right direction when they begin to waver from their original path.

Read more about the 5 emotions that go against trading.

Trade12 - Trading Plan

What happens if you don’t follow your trading plan?

There is a saying that “If you fail to plan, you’ve already planned to fail”. Not following a trading plan transforms your trades into gambling where you simply use your intuition and luck in order to win. In other words, you can’t ensure your success. This doesn’t mean that you are guaranteed success if you have a trading plan. It simply increases your chances of winning through a systematized plan.

Conclusion

There may be times that it could have resulted better if you listened to your intuition and not have followed your plan. Yes, you might have earned a few more profits, but following your initial plan saves you for a longer term. With your decision to follow it, you’ve made a step towards building the most essential value in trading, discipline. In the long run, only the disciplined traders will become consistently profitable. Make sure to trade with your plan and secure yourself a better future in trading.

Stay updated on market news, trends, and tips by regularly visiting Trade12. It is a reputable online trading broker with years of experience in the field. Register an account now and enjoy a wonderful trading experience!

Trade12- Introduction to Portfolio Diversification

Trade12 Review Blog – Introduction to Portfolio Diversification

No matter which stocks you choose to invest upon, huge risk is always present. There is no way you can eliminate this risk. However, you can reduce your overall investment risk and lower the possibility of damaging your portfolio’s performance through an investment technique called portfolio diversification.

Trade12- Portfolio Diversification

What is portfolio diversification?

Basically, portfolio diversification is a risk management technique that is done by investing your money on multiple types of securities or financial assets. Its main objective is to soften the risks of blowing up your account from bad investments and ensure your money is invested in different areas of the market that have a chance to outperform. In diversification, it is important to venture on other asset classes like stocks, bonds, and mutual funds. It is more effective if the investments are spread to different industries, and if possible, different countries.

Importance of diversification

Consider a scenario wherein one company has filed bankruptcy. If all of the stocks you own are from that company, you could probably guess how huge its impact would be in your portfolio. However, if you have another company you’ve invested upon, which makes positive returns, then your portfolio is neutrally safe from crashing alongside the other half of your stocks. Now what if you have invested in 2 other companies which are all doing great in the market? You can confidently say that your winning trades will overshadow your losses since ¾ of your investments make positive returns.

It’s also the same if there is a huge economic decline to a whole industry, or in worst cases, to a whole country. If your stocks are diversified to other industries or countries, you’re other stocks are safe from the negative impacts of those losing in the market.

Trade12- How Many Stocks Should You Own

How many stocks should you own?

There is an argue on how many stocks you should own for optimal portfolio diversification. The most acceptable number of stocks is between 15 to 30 that are all spread to other industries, classes, and countries. However, diversification does not prevent losses from your investments. There is still a possibility that the majority of your assets result to a loss, so smart choosing of profitable stocks is still the best way to lessen this risk.

Conclusion

Despite doing all these precautionary measures, they don’t guarantee you a good portfolio. No matter how diversified your portfolio is, the risk can never be completely eliminated. It can simply reduce the impact of losses from your investments.

In order to diversify, make sure that your broker has everything you would need. Trade12 is a leading international online trading brokerage firm that offers investment services on almost all countries. They also offer investments on stocks, foreign currencies, commodities, and other financial securities you could choose to diversify your portfolio. Register an account now with Trade12 and start diversifying!