Many factors can make or break an investment. For example, how often you trade is essential to a profitable portfolio. Trading too often or too rarely can lead to missed opportunities or poor returns. The perfect frequency is whatever will lead to the greatest margin of profitability. For most traders, this approach means holding on to an investment for as long as possible. However, this plan will vary depending on the investment type, your personal strategy, and more. Consider the following four factors to help you decide how often you should be trading.
The Type of Investment
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Different types of investments call for different strategies for trade frequency. New traders will have their hands full, as plenty of research will be necessary before further exploring options such as day trading, binary options, and the plethora of other investment products available.
For example, day traders will need to decide whether they prefer to make a handful of trades before the markets open or if they plan to make decisions as new data becomes available throughout the day. On the other hand, binary trading options — investments based on whether a certain asset will be higher or lower than its current value by a set time — will need a totally different approach and skill set.
Your Specific Approach
How much risk can you tolerate as an investor? Your personality will largely help you decide what is a proper amount of daily trades for you. For example, a methodical investor will have low risk tolerance and will avoid snap decisions. Those who can tolerate greater risk, however, have more flexibility to jump on new opportunities as they arise. Note that investment type and individual personality work in tandem; a conservative day trader will use a totally different strategy than a spontaneous day trader.
Your Investment Strategy
In general, investments that stay frozen longer net better returns; you’ll likely want to sell as rarely as possible. However, you’ll need to define which market signals are worth an investment to decide how often you should buy.
Avoid hard minimum and maximum trade numbers. Instead, aim to make the correct amount of trades; don’t lock yourself into an arbitrary quota. You need to understand how and why you will trade and how to get out of a bad trade if needed. Define, practice, and stick to your strategy. Only make trades that fit your criteria.
Your Due Diligence
The market is full of unreliable, misleading, and inaccurate data. Plus, convenient modern technology makes it incredibly easy to trade as much as you want. These two factors combined may lead to the temptation to make a quick change when you hear about a market fluctuation. Patience is important, and not only for long-term investors. Short positions, binary options, and all other trades require that you stay patient, not make decisions impulsively, and rely on the knowledge you’ve gained through careful, comprehensive research.
If you’re beginning as an investor or you’re taking an interest in a new approach, find a strategy that accommodates your preferences and goals and test it before committing. Strike a careful balance between knowing the precise moment to trade and when to walk away by considering the above factors.