This article explains 30 simple but effective rules of successful trading in Forex market, stock market, commodity market, bond market or any other.
- Trader, know yourself. Successful trading is 97% understanding and using its own strengths and weaknesses. If you constantly enter into transactions that do not use your strengths, then you will lose money.
- Invest your money, not your “ego“. Even the most carefully constructed system can unexpectedly lead you in the wrong direction. Conditions change. The markets are changing. And even a system that works fine can fail because of such changes. Always be prepared for adaptation. If you are not ready to change your settings, it can cost you very much. Never let your transaction become an “investment” simply because you are unable to understand the changes in the market.
- Maintain a trade magazine.It is very difficult to learn from mistakes if you do not remember them. Always keep a record of your past mistakes and successes at hand. Watch for market movements and reactions and record your observations. Write down how the market moves at certain times. Such a detailed journal is no less valuable than any ever written textbook on successful trading.
- Open the position as if it had the potential to become the “largest deal of the year”. In other words, plan your deals. Do not enter the market until everything is thought through and analyzed in detail. Think about how you will add to the open position (building a pyramid). Make an action plan in unforeseen situations to exit the transaction. Otherwise, you will have to lose money.
- Practice discipline and patience: Wait for the right moment. According to Bill Lipschitz, out of 250 deals – on three you will lose money, two will be very profitable, and all the others depend directly on you. Expect and track compound trends: a strong share, a strong group / sector, a strong market. Wait for the moment when the composite levels of support / resistance will be in your favor. Successful trading is a business where a lot of time is spent in doing nothing.
- Open small starting positions. Use the pyramid principle to add to the original good position. Once it turned out that you were right in your decision, add to your position strategically. As Davy Crockett said, “Make sure you’re right, and – go ahead!”
- Be prepared to make mistakes and take small losses. Trade is trade, markets are markets, and losses are inevitable. However, they are manageable. Put feet, mentally or really, and execute at the planned level without hesitation. So you can manage your risks. And this is the only way to protect your capital and stay in the game.
- The news is already on the schedule, both yesterday’s and tomorrow’s.Proponents of fundamental analysis predictably react to news. Proponents of technical analysis predictably react to figures on the charts and indicators. If you can correctly read the schedule, then you do not need to follow the news, and even worry about what’s in the news. Base your decisions on what is happening on the chart, and not on what, in your opinion, will happen after the news. Forget the news, remember the schedule. He already took into account the future news.
- Always going to the crowd missed the first boat. For example, the first sharp drop in price (sell-off) will always find buyers, and the first rapid rise in price (rally) will always find sellers. These “reactions” are almost always temporary. Plan the purchase on the first rebound from the new high and sell on the first rebound from the new low.
- Large volumes kill the prevailing trend. Always remember that there may be a culmination (too high) new rise or too much collapse. Such climaxes and falls are thrown out from the market by both buyers and sellers. After such breakthroughs, the market usually enters lateral movement.
- Use moving stops if the market goes in your direction. In order not to close a position too early or too late, mentally put a stop at 10-15% of the current market price or slightly beyond the last highs or lows, or, even better, at current support / resistance levels. Then just fix the target level.
- Always, always protect your capital. Cut off small losses.The most important principle is to be intolerant with losses. As always, small losses and quick losses are the best losses. These are not the losses that must be paid attention. It is much worse to experience psychological pressure from maintaining a loss-making position. Practice full risk management.
- Never, never add to a loss-making position. If you are building a pyramid of long positions, then the price of each new purchase should be higher than the previous one. If you add to a short position, then the price of each new sale must be lower than the previous one. This is a mandatory rule.
- Do not try to “catch a falling knife.” On the contrary, wait a few days – a strong rise, bounce back and return to the previous minimum. If the price does not go below the previous minimum, then plan to open the position. If the price does not go up again, it does not matter, there will always be other opportunities. Expect the best time to open.
- Buy from the support level. Set close stops when approaching the resistance level. Your price can slip through the resistance level, stop or fall. If the price falls, the position should be quickly closed.
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- Buy at the support level, sell at the resistance level. You must do so even if it is difficult. If you see this on the chart, then others see it. They are just waiting for the moment to join.
- Never lose sight of support (or resistance, if you sold). The further you from support or resistance (if you have sold), the more naked and lonely you will be. If you want to challenge the price, then imagine a quick turn to the resistance level, imagine a big loss.
- Every day is a new day, and every open position should be reviewed. This is especially true for your exit strategy. The price you paid and the amount of your profit or loss – things not related. If the stock has to be sold, it must be sold. It is not the amount of profit or loss from each position that is important, but your ability to stick to the chosen strategy and implement it.
- Be patient. When the position is open, give it time to develop. Give it time to create the profit that you expected. The saying “You will never go broke, closing profits” is probably the most senseless advice ever given. Closure of small profits is the surest way to increase the probable loss, because small profits are not allowed to grow into big and huge profits. Really big money in trading is done on one, two, three big deals every year. You must develop the ability to patiently hold a profitable position.
- Avoid this haste, which forces you to jump into the market, just to be “in the game.” Do not hurry. Watch, build strategies and be the first at the right time.
- Whatever the proverb is erased, but the trend is really your friend. Do not try to be smart and fight it. Do not try to be a hero. If it seems to you that going back in a one-way street is silly, then you are right. Bring this understanding to the market. In the bull market you need to buy or stand aside. In a bear market, you need to sell or stand aside. And always remember – do not have positions – this is also a position. And in many cases – the best position.
- Avoid unverified “known” strategies. There are many of them. A few examples:
“All gaps get filled” – “All breaks are filled”. The ruptures of exhaustion are filled. Breakthroughs and continuations are not filled.
“No one ever went broke taking a profit” – “No one went bankrupt closing profits.” Closure of fast profits and holding of unprofitable positions can ruin faster than one can imagine.
“It’s not a loss until the stock is sold.” Try to tell your banker. Cut your losses and let profits grow. It is simply impossible to be successful for a long time if you do not cut your losing positions quickly. Unfortunately, this and the previous rule is especially difficult for beginners, because the pain from loss is felt much more intensely than the joy of profit. In no other activity, the conflict between emotions and objective reality is so strong and so obvious as in the exchange trade.
“Always buy at a new high” – “Always buy at a new high”. Trends do not start at new highs, much more often they end there. Whenever possible, buy as close as possible to the beginning of the trend.
- If you need to look for something – it’s not there. As said by Elder: “Technical analysis provides enough opportunities to deceive yourself and see what you really want.” The harder it is to find something, the more likely it is that you see something that does not exist in reality.
- Trends do not unfold quickly. Trends of the trend require time for development. They are built slowly. The first few sharp falls always find buyers, and the first few sharp ups always find sellers. In both cases, buyers (on the uphill) and sellers (on the landslides) should be gradually “washed out” from the market.
- Do more than what works for you and less than what is going against you. Every day, look through your open positions. Plan to add to the position giving the greatest profit. Consider closing positions that do not make a profit or with very little profit. This is the basis of the thesis: “Let the profits grow.”
- When you suffer sharp losses – move away from the market. Close all positions and stop trading for a few days. After a few sharp losses, do not try to recoup and return the money. In such cases, the ability to really perceive the market and its solutions is lost.
- Think like a hired fighter. Fight on the side of the market that wins. Do not waste time and capital in vain attempts to earn, buying at the lows and selling at highs or on some market movements. Your duty is to profit by fighting on the side of the conquering forces. If neither side wins, then do not beat at all.
- Beat the market crowd. Other traders in the game in order to take your money. You must take away their money before they get to your …
- About analysts: look at the analyst and the bill he has exposed. Everyone lies. In general, they do it to collect your money. Analytical services belong to financial organizations. They are not in business to help you. They are engaged in promoting the interests of the firm and collecting commissions.
- Be ready to seriously study. Those traders who do not want to spend time studying and observing markets, training, and training, mastering technical analysis, new trading systems and methods, etc., will almost always lose.