Top 10 Rules For Successful Trading
Rule 1: Always Use a Trading Plan
A trading plan is a written set of rules that specifies a trader's entry, exit and money management
criteria for every purchase.
With today's technology, it is easy to test a trading idea before risking real money. Known as
backtesting, this practice allows you to apply your trading idea using historical data and determine if
it is viable. Once a plan has been developed and backtesting shows good results, the plan can be
used in real trading. The key here is to stick to the plan. Taking trades outside of the trading plan,
even if they turn out to be winners, is considered poor strategy.
Rule 2: Treat Trading Like a Business
To be successful, you must approach trading as a full- or part-time business, not as a hobby or a job.
If it's approached as a hobby, there is no real commitment to learning. If it's a job, it can be
frustrating because there is no regular paycheck.
Trading is a business and incurs expenses, losses, taxes, uncertainty, stress, and risk. As a trader, you
are essentially a small business owner and you must research and strategize to maximize your
business's potential.
Rule 3: Use Technology to Your Advantage
Trading is a competitive business. It's safe to assume that the person sitting on the other side of a
trade is taking full advantage of all of the available technology.
Charting platforms give traders an infinite variety of ways to view and analyze the markets.
Backtesting an idea using historical data prevents costly missteps. Getting market updates via
smartphone allows us to monitor trades anywhere. Technology that we take for granted, like a highspeed internet connection, can greatly increase trading performance.
Using technology to your advantage, and keeping current with new products, can be fun and
rewarding in trading.
Rule 4: Protect Your Trading Capital
Saving enough money to fund a trading account takes a great deal of time and effort. It can be even
more difficult if you have to do it twice.
It is important to note that protecting your trading capital is not synonymous with never
experiencing a losing trade. All traders have losing trades. Protecting capital entails not taking
unnecessary risks and doing everything you can to preserve your trading business.
Rule 5: Become a Student of the Markets
Think of it as continuing education. Traders need to remain focused on learning more each day. It is
important to remember that understanding the markets, and all of their intricacies, is an ongoing,
lifelong process.
Hard research allows traders to understand the facts, like what the different economic reports mean.
Focus and observation allow traders to sharpen their instincts and learn the nuances.
World politics, news events, economic trends—even the weather—all have an impact on the
markets. The market environment is dynamic. The more traders understand the past and current
markets, the better prepared they are to face the future.
Rule 6: Risk Only What You Can Afford to Lose
Before you start using real cash, make sure that all of the money in that trading account is truly
expendable. If it's not, the trader should keep saving until it is.
Money in a trading account should not be allocated for the kids' college tuition or paying the
mortgage. Traders must never allow themselves to think they are simply borrowing money from
these other important obligations.
Losing money is traumatic enough. It is even more so if it is capital that should have never been
risked in the first place.
Rule 7: Develop a Methodology Based on Facts
Taking the time to develop a sound trading methodology is worth the effort. It may be tempting to
believe in the "so easy it's like printing money" trading scams that are prevalent on the internet. But
facts, not emotions or hope, should be the inspiration behind developing a trading plan.
Traders who are not in a hurry to learn typically have an easier time sifting through all of the
information available on the internet. Consider this: if you were to start a new career, more than
likely you would need to study at a college or university for at least a year or two before you were
qualified to even apply for a position in the new field. Learning how to trade demands at least the
same amount of time and fact-driven research and study.
Rule 8: Always Use a Stop Loss
A stop loss is a predetermined amount of risk that a trader is willing to accept with each trade. The
stop loss can be a dollar amount or percentage, but either way, it limits the trader's exposure during
a trade. Using a stop loss can take some of the stress out of trading since we know that we will only
lose X amount on any given trade.
Not having a stop loss is bad practice, even if it leads to a winning trade. Exiting with a stop loss, and
therefore having a losing trade, is still good trading if it falls within the trading plan's rules.
The ideal is to exit all trades with a profit, but that is not realistic. Using a protective stop loss helps
ensure that losses and risks are limited.
Rule 9: Know When to Stop Trading
There are two reasons to stop trading: an ineffective trading plan, and an ineffective trader.
An ineffective trading plan shows much greater losses than were anticipated in historical testing.
That happens. Markets may have changed, or volatility may have lessened. For whatever reason, the
trading plan simply is not performing as expected.
Stay unemotional and businesslike. It's time to reevaluate the trading plan and make a few changes
or to start over with a new trading plan.
An unsuccessful trading plan is a problem that needs to be solved. It is not necessarily the end of the
trading business.
An ineffective trader is one who makes a trading plan but is unable to follow it. External stress, poor
habits, and lack of physical activity can all contribute to this problem. A trader who is not in peak
condition for trading should consider taking a break. After any difficulties and challenges have been
dealt with, the trader can return to business.
Rule 10: Keep Trading in Perspective
Stay focused on the big picture when trading. A losing trade should not surprise us; It's a part of
trading. A winning trade is just one step along the path to a profitable business. It is the cumulative
profits that make a difference.
Once a trader accepts wins and losses as part of the business, emotions will have less of an effect on
trading performance. That is not to say that we cannot be excited about a particularly fruitful trade,
but we must keep in mind that a losing trade is never far off.
Setting realistic goals is an essential part of keeping trading in perspective. Your business should earn
a reasonable return in a reasonable amount of time. If you expect to be a multi-millionaire by
Tuesday, you're setting yourself up for failure.
TRY TO APPLY THIS TEN RULES IN TRADING .IT WILL DEFINITELY MAKE YOU A SUCCESSFUL
TRADER.🙏🙏