Top 10 Rules For Successful Trading

Top 10 Rules For Successful Trading

It is easy to become a trader: no degrees or special knowledge are required, the initial costs are relatively low, and you can work without leaving your home. However, an easy start does not mean an easy profit. Most experienced traders confirm: success depends on many factors, including hard work, planning, discipline, and constant market research.

As in other industries, there are certain principles, the observance of which can significantly increase the chances of success. Here are ten perpetual trading rules that are relevant to everyone, regardless of the market, technology, or time frame that you prefer.

Always use a trading plan

Even newcomers to trading, most likely, heard the phrase: “Transactions – plan, plan – follow.” A transaction plan is a set of rules that define the criteria for entry, exit, and money management. A good plan is often based on experience or market observation and is developed through research and extensive testing.

Developing a profitable plan takes a lot of time and requires a lot of effort, and its main advantage is consistency. Many traders find it harder to follow a plan than designing it. It is necessary to fulfill all the conditions without making excuses, not guessing or otherwise deviating from the rules that were so carefully created. If you are involved in transactions that, although profitable, do not fit into your plan, this is bad trading.

Check your plan regularly

Although traders expect to be able to make money (after all, it was precisely for this that trading was invented), it is important to understand that success is not guaranteed. Losing money is always difficult, but worst of all, if it happens at the very beginning of the journey.

It goes without saying that you should not use money set aside for other purposes for transactions: educating your children, mortgages, or everyday expenses. Firstly, this is an overall terrible idea that can lead to catastrophic financial losses.

Secondly, when you use funds that you should never lose, you are subjected to terrible stress. Such pressure leads to poor decisions and, ultimately, to losses.Before trading, it is important to admit to yourself – for you honestly, this is “extra” money. If you do not have extra money, continue to save until they appear.

Use technologies

E-commerce has existed for a long time, but the tools that are available to modern traders are constantly being improved and developed. Fast computers, high-speed Internet, fully electronic markets, and direct access trading are the main helpers of an independent retail trader.

More powerful technologies include automated trading, innovative market research tools, and testing of trading systems based on historical data. Mobile trading applications allow you to analyze trading conditions, place orders, and manage positions using a smartphone or tablet. All together gives the trader an incredible level of flexibility. Using outdated technologies puts the trader at an extremely disadvantageous position.

Limit your losses!

It is very important to limit your losses for each position strictly: that is, already entering the market, you should clearly understand at what level you will fix the loss if the price goes against you. It happens that immediately after such a loss fix, the market turns around and goes in your direction – but without you. However, this can only motivate you to define exit points better – but by no means to refuse to use “stop loss” in principle. Remember that if your open position has a loss of 50% (that is, the price has fallen by half), then to restore the status quo, a price increase of 100% is required (that is, again, twice).

Therefore, the average loss per transaction should be significantly lower than the average profit. Therefore, if you bought a share at 200 USD and set a “stop loss” at 180, then the level where you are hoping to take profits should be at least 230, and preferably at least 240.

Read as many financial books as possible

Traders and investors come to the market to get rich quick and effortless. They read books in search of a magical trading system, try various programs and techniques. In 90% of cases, trading for them ends with the loss of several deposits and self-confidence.

Why is this happening, and how to avoid it? There is no definite answer because each loser has his own individual story. But all stories have a common subtext – an insufficient level of knowledge about the stock market game, which follows from the small number of good books about trading that have been read.

Assess risks and protect capital

Traders succeed through sound risk management and protection of trading capital. Specific transactions should also avoid a high level of risk. The generally accepted industry risk standard is no more than 2% in each transaction. Traders with small accounts often believe that this limits their profit and, as a result, they risk much more.

And to lose all the money, a few losing trades in a row are enough. One way to manage risks and protect capital is to use a stop-loss order. It limits the risk for each transaction. We all would always like to stay profitable, but that is not possible. Since losing trades are inevitable, it makes sense to evaluate how big the losses can be. If a trade moves in the wrong direction, the transaction closes, and the trader moves to another transaction. Insufficient capitalization – in other words, lack of money – is perhaps the main reason why many traders fail.

Accept losses and continue to work calmly

Although most traders are focused on success, trading is mostly about losing. In reality, successful traders generally assess not their possible profit, but how much they can afford to lose.

Losses are always there, and despite claims that some trading plans or systems are 100% profitable, in reality, many successful plans only make a profit in 40% of cases. The formula for success is to earn more on every winning trade than to lose on every losing trade. Thanks to this, traders make a profit.

Look at trading soberly

You must stay focused daily and not forget about the big picture. A losing trade (or an entire day) should not be taken as a surprise. This is only part of the trade. But one profitable transaction (or day) is also not a reason for celebration, but only a step on the path to long-term profit.

Since trade is a business, the total profit is important. Every trading day is just another day, no matter how it ended. Once a trader recognizes that profit and loss are only part of the business, it will be easier for him to cope with emotions. Realistic goals are necessary to take a sober view of your affairs.

For example, you should not count on huge profits if you have a small trading account: a 30% income on a $ 5000 account is not at all the same as a 30% income on a $ 1 million account.

Use a Stop-Loss Order

Stop-loss is a limit order that protects you from further losses when the price moves against your position. In this article, we will look at various stop-loss strategies that can be used to minimize risk and maximize profits. Trading with stop-loss limits your losses and keeps the trading deposit from sudden price movement is not in your favor. You can take stop loss as a kind of insurance. You have to pay small premiums constantly, but insurance will protect you from large monetary losses in case of sudden market movements against your position.

Stop-loss rules are often misunderstood in regular retail. However, it should be clear that you can never enter a trade without stop loss. Not only because you run the risk of losing too much on one trade, but you can also easily fall prey to emotional trading mistakes. When you know where your stop loss is (and why you place it there), you will feel less tempted to violate your stop-loss rules and are more likely to stick to your original plan.

Know how to stop in time

There are two main reasons to stop trading. Firstly, this is an ineffective plan, during the implementation of which the trader suffers greater losses than expected. Markets are changing, interest, and volume in individual trading instruments are changing, and trading plans simply cannot live up to expectations. Perhaps the time has come to take a step back and reevaluate the plan while remaining businesslike and passionless throughout the process. An ineffective trading plan is not necessarily the end of the world, but this problem must be resolved.

The second reason for stopping trading is the inefficiency of the trader. Here factors such as emotions, external stress, illness can affect. A trader can develop a good trading plan but not be able to implement it properly. It is necessary to recognize any personal problems and deal with their solution to correct the situation. For example, if a trader does not cope with emotions, he can apply an automation strategy.

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Written by:


Carolyn Huntington is an economist, professional trader, and analyst. She made her first big deal in her student years with a profitable investment in Facebook stock. Now the total experience of her trade is 18 years. Over the years of trading, Carolyn has developed its own strategy that allows even those who have never traded on the stock exchange before to earn money. She also creates market forecasts and advises major shareholders, compiles investment portfolios, and teaches how to work with automated advisors.

telephone: 503-547-5192