The financial trading world experiences changes almost daily, and adopting positive practices can significantly enhance traders' chances of success. From risk management to continuous education, these practices can help achieve profitability while reducing risks and navigating the complexities of market conditions. Proper planning and management of trading strategies will allow traders to optimize their potential returns when trading financial instruments online. Let's outline some of the best practices that experienced traders employ nowadays.

Realistic expectations and trader's mindset

Calculating the potential returns when trading online and having realistic expectations is paramount to smoothly kickstart your financial trading career and set yourself up for success. If you plan to become a millionaire overnight, you must reconsider your priorities. When implemented properly with a well-tested trading strategy and discipline, trading is the perfect way to make a living. Still, with a get-rich-quick attitude, traders will only build psychological barriers, which is never good. By setting realistic goals with realistic expectations, traders can anticipate what they can expect from their trading strategies and plan accordingly.

Building trader's mindset

Traders think in probabilities and do not care about any single trading position's outcome. Adopting this mindset of probabilities is a considerable challenge for beginner traders. It is difficult to be indifferent when there is real money on the line, and very rarely will traders execute their strategy after three consecutive losing trades. This is why trading psychology is crucial in financial trading, where traders constantly face waves of emotions such as fear and greed. Countering these emotions while risking real money in financial trading is not easy. However, with the best positive practices, it is entirely possible and manageable. The best approach is to strictly follow your trading strategy, and avoid emotional trading.

Develop a viable trading strategy

Trading strategy is the backbone of profitable financial trading, as it allows traders to follow strict rules and avoid impulsive trading decisions that often lead to failure and excessive losses. A financial trading strategy is a list of rules where a trader outlines their trading goals, risk tolerance, and the criteria to enter and exit trades. Before you can outline these rules and goals, it is critical to familiarize yourself with popular trading platforms. Choose one advanced platform that is offered by the majority of Forex and financial brokers such as MetaTrader 4 (MT4), MetaTrader 5 (MT5), or cTrader. These platforms offer superior capabilities, including technical indicators and automated trading robots. MT4 is by far the most popular platform with a large community and is supported by 90% of brokers. After knowing your platform basics to open a position, set stop-loss and take-profit, and close, it is time to learn about technical and fundamental analysis.

Only after these preliminary steps can traders transition to developing their trading ideas and methods. Having a well-defined plan helps in maintaining discipline and avoiding impulsive decisions. Here is how a well-outlined trading plan should include:

Clear objectives

Define your financial goals. What is the income you are aiming for, and how do you want your portfolio to grow? This is important because it enables you to have a vision of where you want to be in the future and allows for the development of a well-targeted trading strategy.

Risk management

This is the most critical part of financial trading, be it Forex, stocks, or any other assets. Without strict risk management, it is impossible to survive in the long run. Traders should plan their trading business like startups do, by aiming to stay in the game in the long term. Here are key risk management tools:

  • Stop-loss orders — stop-loss closes the trading position when the price reaches a predetermined number. Stop-loss is the most significant risk management tool in a trader's arsenal and allows one to cut losses quickly and move to the next opportunities.
  • Take-profit orders — Take-profit order acts like stop-loss but instead of cutting losses, they close trades that are in profits. By using take-profit traders can lock in earnings which is an important part of financial trading.
  • Position sizing — To control risk and the amount of money at stake, position sizing is critical. Using large position sizing can seriously harm trading accounts.
  • Risk-reward ratio — How much you risk for each dollar of profit is a critical ratio that helps traders stay profitable even with a low win rate.
  • Win rate — win rate simply means how many trades are profitable on average from 100 trading positions opened. Scalping strategies have higher win rates but lower risk-reward, while swing trading is the opposite.

Strategy guidelines

Detail the strategies you will use. List technical indicators and market conditions that must be met before entering a trade. With this list, you can open a trading position when the trading setup appears, avoiding impulsive trading and excessive losses. The trading strategy also includes clear rules for stop-loss and take-profit methods.