Have you ever thought about becoming a trader? Trading is one of the few opportunities in life that allow you to make a living and enjoy your work at the same time. If you like taking risks and don’t mind working under pressure, trading can be an excellent career choice for you.
Remember that “successful” trading is a relative term. What works may not work for you since we all have different goals and tolerances for risk? Think about your goals and risk tolerance before making any trades (and stick to them) and you will be more likely to succeed in this business over the long run.
There are lots of tips to keep in mind when trading. Here are, in our opinion, the ten most important rules of trading.
1. Don’t trade more than you can afford to lose
This is the simplest rule on this list, but also the most important. You should never risk money that you cannot afford to lose. Putting your family’s future at risk just because you want some quick profits is a good way to get your entire family evicted from their homes by their landlord.
2. Keep a trading plan and follow it
Trading without a plan is one of the best ways to get yourself into trouble. You should have a trading plan in place before you enter the market. Trading without a plan means avoiding decisions at all costs, which can be an expensive strategy when dealing with other people’s money.
3. Don’t believe in a single method or system
There is no such thing as the holy grail of trading systems, so don’t waste your time looking for one. Different market conditions require different methods and tools to be successful. For example, the best way to trade during an uptrending market would be different than the best way to trade during a downtrending market.
4. Learn from your and other people’s mistakes
We all make mistakes, but you can learn from them and become a better trader over time. Another thing you should do is read up on legendary traders like Nicolas Darvas and Jesse Livermore. These traders may be long gone, but their lessons are still available for any trader willing to learn.
5. Always follow your rules of engagement
Remember that there is nothing wrong with taking 24 hours off from the markets if nothing is happening. It’s better to miss a trade than make the wrong decision and lose some or all of your money.
6. Never average down a losing trade
If you keep adding to your losing positions, you will find yourself in a very poor financial situation before you know it. You should always cut your losses quickly and take whatever profits those trades offer. Averaging down means adding more money to those loss-making positions which can get you into serious trouble.
7. Never get married to positions
If a trade is not working, cut it quickly and move on to another one. You can always place the same position again if the market conditions are right, but no market will be perfect all of the time so expect some losses while searching for your winners. The market changes fast and you should not cling to a position that’s slowly bleeding money.
8. Have stops in place before placing any trade
It doesn’t matter whether we are talking about long or short positions – you need to have stop losses in place at all times. Without these vital risk management tools, the chance of losing money is high since you will keep your losers as well as your winners if you don’t plan for potential losses.
9. Never average down a losing position
We explained this point above but it deserves to be mentioned again here as one of the most important rules of trading: You should always cut your losses quickly and take whatever profits those trades offer. Averaging down means adding more money to those loss-making positions which can get you into serious trouble.
10. Never trade without a time frame
If you have no timeframe for your trades, the market will eat you alive so be sure to only take trades that can fit within your timeframe. There is nothing wrong with scaling in and out of positions but doing this on the daily charts is not practical nor realistic for most traders. You should have a straightforward plan for how long you are going to invest in those positions as well as when you are going to remove them from your account. Trading without a goal means trading without a plan – and we all know where this kind of behavior leads us eventually…
Good luck with your trading!