To become a successful stock trader, you only need to spend a few moments online to search for phrases like “plan your trade; trade it your plan” or “keep your losses down to a minimum.” These tidbits may seem like distractions rather than useful advice for new traders. You may just want to learn how to make money quickly if you are new to trading.
Although each rule is important, the combined effects of these rules are powerful. These rules can help you increase your chances of success in the market.
The Key Takeaways
Trading should be treated as a business and not as a hobby.
Find out everything you need to know about the company.
For your business, set realistic expectations.
Rule 1: Always use a trading plan
A trading plan is a set of written rules that specifies the trader’s entry and exit points, as well as money management guidelines for each purchase.
It is possible to quickly test your trading ideas before you risk real money. Backtesting is a technique that allows you to test your trading idea with historical data in order to determine if it’s viable. After a plan is developed and backtesting has shown good results, it can be used for real trading.
Sometimes, your trading plan will not work. You can bail out and start again.
Sticking to your plan is the key. Trading outside the trading plan is considered poor strategy, even if it turns out to be a winner.
Rule 2: Treat trading like a business
You must view trading as a full-time or part-time job if you want to be successful.
It’s best to approach it as a hobby. This will not lead to a commitment to learning. It can be frustrating if it becomes a job because you don’t get a regular income.
Trading is a business. It involves expenses, losses and taxes. You are basically a small business owner as a trader. To maximize your business’s potential, you need to research and strategize.
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Rule 3: Technology can be used to your advantage
Trade is a competitive industry. It is safe to assume that the trader on the other end of a trade is using all available technology.
Charting platforms offer traders a wide range of options to analyze and view the markets. It is possible to backtest an idea by using historical data. This prevents costly mistakes. We can monitor trades from anywhere by receiving market updates through our smartphone. High-speed internet connections, which we often take as a given, can dramatically improve trading performance.
Trading can be fun and rewarding if you use technology to your advantage and stay current with new products.
Rule 4: Protect your trading capital
It takes time and effort to save enough money for a trading account. It can be more difficult if you do it twice.
Important to remember that trading capital protection does not mean you will never lose a trade. Every trader has lost trades. You must avoid taking unnecessary risks and do everything possible to protect your capital.
Rule 5: Be a student of the Markets
It’s like continuing education. Traders must continue to learn more every day. Remember that learning the markets and all their intricacies is a lifelong process.
Trading requires hard research to be able to grasp the facts. Traders can sharpen their intuitions and learn the subtleties by focusing on observation.
Markets are affected by news, weather, and world politics. Markets are dynamic. The better traders are prepared to face the future if they have a good understanding of the markets in the past and present.
Rule 6: Only risk what you can afford to lose
Before you use real cash, ensure that your trading account has enough money to last. The trader should continue to save until the money is available.
A trading account shouldn’t be used to pay the mortgage or tuition for the children’s college. Traders should not think that they are borrowing money from other obligations.
It is enough to be traumatized by losing money. Even more so when it is capital that shouldn’t have been risked.
Rule 7: Create a method based on facts
It is worthwhile to invest the time and effort in developing a solid trading strategy. You may find it tempting to believe the internet-based “so simple it’s like printing cash” trading scams. However, it is important to use facts and not emotion or hope when developing a trading strategy.
Trader who don’t have a lot of time to learn tend to be more successful in searching through the vast amount of information on the internet. Think about this: If you wanted to begin a new career, you would likely need to have studied at a college or university at least one year before you could apply for a job in that field. Trade learning requires at least the same amount time, fact-driven research, and study.
Rule 8: Always Use a Stop Loss
A stop loss is an amount that a trader accepts as a minimum risk with every trade. A stop loss can be either a percentage or a dollar amount. However, it limits trader’s exposure. A stop loss is a way to reduce stress when trading because we know we will not lose more than X on any trade.
Even if you are able to make a profit, it is a bad idea not to have a stop loss. If the trading plan allows it, exiting with a stop-loss and thus losing trades is acceptable trading.
It is ideal to be able to close all trades without losing any profit. However, this is not possible. Protective stop loss is a way to limit losses and minimize risks.
Rule 9: Know when to stop trading
Two reasons to stop trading are ineffective trading plans and ineffective traders.
Ineffective trading plans can cause much more losses than expected in historical testing. This happens. It could be that markets have changed or volatility has decreased. The trading plan is simply not performing as expected, regardless of the reason.
Be professional and non-emotional. You need to review your trading plan, make some changes or start again with a new one.
A failed trading plan is an issue that must be addressed. However, it is not the end of trading.
Ineffective traders are those who make a trading plan, but can’t follow it. This problem can be caused by poor habits, external stress, or lack of physical activity. If a trader is not at their best, they should take a break. Once all difficulties and obstacles have been resolved, traders can resume trading.
Rule 10: Keep trading in perspective
When trading, keep your eyes on the bigger picture. We shouldn’t be surprised if we lose trades. It’s part of trading. A winning trade is only one step on the road to a profitable company. The cumulative profits are what make the difference.
Emotions will not have an impact on trading performance if a trader accepts losses and wins as part of their business. While we can be happy about a successful trade, we should also remember that losing trades are not uncommon.
It is important to set realistic goals in order to keep trading in perspective. Your business should be able to earn a reasonable return over a reasonable time. You’re setting yourself up to fail if you think you will be multi-millionaire in a week.
A trader can establish a profitable trading business by understanding the importance of each trading rule and how they interact. Trades are hard work. Traders who can follow these rules with discipline and patience will be more successful in a highly competitive market.