Anyone who wishes to be a successful stock trader only needs to spend just a few minutes on the internet to search for phrases such as “plan your trade; trade your plan” and “keep your losses to a minimum.” For those who are new to trading, the information may seem more of a distraction than useful tips. If you’re just beginning to learn about trading, you may want to learn how to get started and earn money.
Each one of these rules is crucial and when they work together, the results are powerful. By keeping them in mind, you can significantly increase your chances of success in the markets. Top 10 Rules For Successful Trading
- 1 Rule 1: Always Use a Trading Plan
- 2 Rule 2: Treat Trading Like a Business
- 3 Rule 3: Use Technology to Your Advantage
- 4 Rule 4: Protect Your Trading Capital
- 5 Rule 5: Become a Student of the Markets
- 6 Rule 6: Risk Only What You Can Afford to Lose
- 7 Rule 7: Develop a Methodology Based on Facts
- 8 Rule 8: Always Use a Stop Loss
- 9 Rule 9: Know When to Stop Trading
- 10 Rule 10: Keep Trading in Perspective
Rule 1: Always Use a Trading Plan
The trading strategy is the written list of rules that outlines the entry, exit, and managing money requirements for each purchase.
Thanks to the advancements in technology, it’s simple to test an idea for trading before putting your money into it. Also known by the term “backtesting”, this method allows you to test your trading concept with historical data to see whether it’s viable. After a strategy is designed and backtested to show good results, the strategy can be applied to actual trading.
Sometimes, the trading strategy you have chosen doesn’t perform as expected. You can bail out and begin again.
The trick is adhering to the strategy. Trading outside of the plan for trading even if they prove to be successful, is a bad strategy.
Jack Schwager: Investopedia Profile
Rule 2: Treat Trading Like a Business
For success, You must think of trading as a full-time or part-time enterprise, not just as a hobby or job.
If it’s viewed as an interest, there’s no commitment to learning. If it’s an occupation, it’s frustrating since there’s no paycheck regularly.
Trading is a business that is a business that has expenses, losses tax, stress, uncertainty, and risks. As a trader, are in essence small-business owners and must study and plan to maximize the potential of our business.
Rule 3: Use Technology to Your Advantage
It’s a business that is competitive. It is safe to say that the person at the other end of a transaction makes the most of all the available technologies.
Charting platforms offer traders the opportunity to choose from a variety of options to study and evaluate the market. Back-testing an idea with previous data can help avoid costly mistakes. The ability to receive market updates through smartphones lets us monitor trades at any time. The technology we consider to be standard such as a fast internet connection can dramatically improve the performance of trading.
Utilizing technology to your advantage staying up to date with the latest products can be rewarding and enjoyable when trading.
Rule 4: Protect Your Trading Capital
The process of accumulating enough cash to cover the account of a trader is a significant amount of effort and time. It’s much more challenging if must do it twice.
It is vital to understand that safeguarding the value of your trade capital does not mean not losing a trade. Every trader has losing trades. To protect capital, you must avoid taking on unnecessary risks and do all that you can to protect your business.
Rule 5: Become a Student of the Markets
Consider it as continuous education. Traders must remain in constant pursuit of learning every day. It is crucial to keep in mind that understanding the market, and all the nuances of them are a continuous ever-changing process that is never-ending.
The hard work of research helps traders be aware of the facts, such as what different economic reports are referring to. Concentration and observation enable investors to improve their intuition and gain a better understanding of the nuances.
News events, world politics, and economic trends, even the weather can affect the market. The market is constantly changing. The more traders are aware of the market’s past and present the better equipped they will be to deal with the future. Top 10 Rules For Successful Trading
Rule 6: Risk Only What You Can Afford to Lose
Before you begin using cash in real life, be sure that the money that is in your trading account can be used. If it’s not, then the trader needs to save it until the money is.
The money in a trading account shouldn’t be used to pay for college tuition or for paying the mortgage. The traders should never be enticed to believe they are borrowing funds from these other crucial obligations.
The loss of money is enough to be traumatic. This is especially true when it’s capital that shouldn’t have been put at risk in the beginning.
Rule 7: Develop a Methodology Based on Facts
The time spent developing an effective trading strategy is well worth the time and effort. It’s tempting to think that you can be fooled by those “so easy it’s like printing money” scams for trading that are aplenty on the web. But facts, not emotion or hope is the primary motivation in establishing a plan to trade.
Traders who aren’t eager to learn generally have a much easier time sorting through all the information that is available online. Take this for instance: if you wanted to begin an entirely new profession most likely, you’d have to learn at a university or college for at minimum an entire year before you could even be considered for a position in the field of your choice. To learn how to trade, you need at least the same amount of time and thorough and fact-based research.
Rule 8: Always Use a Stop Loss
Stop loss is a set amount of risk the trader will take on with every trade. The stop loss could be in the form of a dollar figure or percentage, but in any case, it reduces the risk that a trader is exposed to during the course of a trade. Stop loss is a good way to reduce some of the pressure of trading as we are aware that we can only lose X dollars on every trade.
The absence of a stop loss is not a good idea even if it can lead to a profitable trade. A stop loss-based exit which is an unsuccessful trade is still a good thing in the context of the rules of the trading plan.
The ideal would be to close any trade that earns the possibility of earning a profit, however, that isn’t feasible. The use of stop loss protection can make sure that risk and losses are minimized.
Rule 9: Know When to Stop Trading
There are two main reasons to stop trading: a poor trading strategy, or an unprofessional trader.
A trading strategy that is not effective results in far more losses than expected in past tests. It occurs. The market may have changed or volatility could have decreased. Whatever the reason, the trading strategy isn’t functioning as planned.
Keep your business-like demeanor calm. It’s time for a re-evaluation of the strategy for trading and to make some changes or start with a fresh trading strategy.
A failed trading strategy is a concern that needs to be resolved. It’s not the end of the trading business.
A trader who is ineffective is someone who has an investment plan but fails to adhere to the plan. Stress from the outside, poor practices, and insufficient physical exercise can be the cause of this issue. An individual who is not in top form to trade should think about having time off. When any problems or issues are resolved then the trader is ready to go back to work.
Rule 10: Keep Trading in Perspective
Focus on the bigger picture when you trade. The possibility of losing money should not be a surprise to us, it’s just an aspect of trading. A successful trade is only one of the steps to becoming a profitable business. It’s the cumulative earnings that matter.
If a trader is able to accept the loss and wins as an aspect of business emotional reactions will not have as much impact on the performance of trading. It’s not to say that we can’t get thrilled about a successful trade, but it is important to remember that losing trades are not far away.
Setting achievable goals is an important element of keeping your trading an overall perspective. Your company must be able to earn a decent profit in an acceptable amount of time. If you’re expecting to become a multi-millionaire on Tuesday then you’re making yourself vulnerable to the possibility of failure.