Top 10 Rules for Successful Trading

in Finance and Investment

Regardless of what you trade, there are some basic principles or rules that make you a successful trader. Remember the old saying – it doesn’t matter what you trade, it is how you trade that makes you a winner. So, if you are stepping into the online trading arena, these are the 10 trading rules to follow:

Rule #1: Always Follow a Trading Plan

All traders are advised to follow a trading plan or strategy. Since we are human beings, we are tempted to break the rules. In trading, this is known as the non-discipline approach and it can cost you big time.

Rule #2: Keep on Learning

You can’t really stick to one strategy all the time. As the market is ever changing, you need to change your strategies too. This calls for educating yourself on a daily basis. You have to study the market trends and then pick the strategy accordingly. Over time, you will build a profound knowledge base and that makes you a successful trader.

Rule #3: Protect Your Capital

It can take years to save and fund your trading account. That’s why always protect your capital. But that doesn’t mean it is never ok to lose. Losses are inevitable at times. By protecting capital, it means you should avoid taking the kind of risk which can put you out of business.  

Rule #4: Only Risk What You Can Afford to Lose

Speaking of risk, let’s face it that you will have to take a risk if you want to stay in the game. But it’s never advised to risk the money you can’t afford to lose. For example, the money that you put in your trading account must not be the funds for your kid’s college education.

Rule #5: Use Technology to Your Advantage

The tools that are available to modern traders are quite advance. They are also constantly evolving. Technologies such as research tools and trade automation can give you the information you didn’t have before. You can now even manage positions on the go using your mobile phone. Why not use all this flexibility to your advantage?

Rule #6: Never Chase the Market

If you try to beat the market, it will crush you. The market is constantly moving in a spiral and it can suck you in anytime. You must wait patiently and roll your dice after careful analysis.

Rule #7: Prepare an Exit Strategy

Before you enter a position, it is always wise to have an exit strategy in place. If it helps, include it in your trading plan. Write down how you will get out of a winning or losing position. Experienced traders say that it is the exit that determines if you will lose or win.

An exit strategy isn’t always about putting stop losses. You can also use a time or activity-based exit. The type of market activity can also help you determine your exit.

Rule #8: Accept Your Loss but Don’t Forget to Learn from It

Trading is not always about winning. In fact, if you take a closer look, it is mostly about losing. Successful traders always think of trading in terms of how much money they can afford losing.

No single trading plan is full proof. You will lose. So it’s best to accept that as you step into the field. But that is not it, these losses have valuable lessons for traders. In order to learn from your mistakes, start maintaining a trading journal. Mention what went wrong so that you avoid this mistake in the future. This record will help you evaluate the performance of your trading plan, too.

Rule #9: Keep a Cushion

Beginners always think the market is the best place to put all their money in especially if it’s in the bull phase. They forget that it can start acting differently anytime. In that case, you could lose all your money.

You must never commit a large sum of money into the market at a given time. Always keep a cushion. A good approach is to take out profits from your account and put them in a separate account. Keep on doing that and when the market turns unfavorable, you will always have a backup. So, when you have a cushion in case you fall, life wouldn’t be that stressful.

Rule #10: Know When to Stop Trading

Some people just don’t have control over them. For such individuals, trading can become an obsession. And obsession never brings favorable outcomes.

One must stop trading in the following two scenarios. First, when the trading plan is ineffective and you are losing more money than anticipated. Second, when the trader himself is ineffective. In such a situation, emotions, stress, and health can have a negative impact on your trading performance.

In both cases, you must first take measures to improve your situation. Sometimes, that means taking a break.

Summing Up

Having enough knowledge about trading and picking the right CFD trading platforms also matter. However, without a disciplined approach, you can never be successful. Trading is never easy but as long as you stick to these golden rules, you will succeed even if you lose sometimes.