If we look around the internet we will see a lot of different tips and hints being thrown around, some are pretty good, while others seem like they are simply plucked out from thin air. There are however a few things that are true across the board, no matter your experience level and no matter how long you’ve been trading. There are a few little rules that you should always take into consideration. We are going to be taking a look at a few of them and why they are so important if you want to become a successful trader.
Understand When to Limit Your Losses
One of the major areas of trading is risk management, this is simply the way that you protect your account. Without it, your account is liable to be blown with pretty much every single trade that you make, so it is vital that you have a risk management plan in place. As well as this plan is the need to understand why you should be cutting your losses. This is not something gotta anyone likes but it is a very important part of trading. When you have a trade going the wrong way, what do you do? Do you hold on to it in the hope that the markets reverse or do you deceit to cut the loss and then rebuild the account from the loss position?
There isn’t an exact right or wrong answer here because everyone is different, we all have different abilities to handle risk and stress so ultimately it is going to come down to you. A lot of your profitability will come down to your ability to get out of, losing trades before they go too far. There are a few ways of doing this, either watching the trade manually, setting stop losses, or one of our favourites, setting up trailing stop losses. These are good because they act the same as a fixed stop loss, except for the fact that they move with the market, as your trades go up, the stop loss will follow them, when things reverse the wrong way it will hit the stop loss and you will close the trade. Just ensure that you have things in place along with your risk management plan in order to get out of trades before it is too late.
Understand and Accept Your Limits
When we first start out we just want to get started, we want to start placing some trades in order to get the ball rolling, but this is not exactly the smartest thing to do right from the very beginning. Simply thinking that a trade is a good one is not enough, instead, you will need to look at each trade with a clear mind with a set amount that you are going to be risking on this trade. Doing it this way will enable you to know exactly how much you have to use and so you can limit your position to be within your own boundaries.
It is important that you then stick to these limits, there is no point in making him just to break then the next minute. You will need to be strict with yourself and to have a lot of self-discipline in order to do this, but in the end, it will certainly pay off. If you have set yourself a weekly loss limit or a monthly loss limit, if you hit that amount, then no matter what else is going on, you will need to stop trading and then use the remaining time to analyse what it is that has gone wrong and to work out ways to avoid it happening again in the future.
Develop Your Trading Style and Stick With It
Unless someone is simply copying someone else trade for trade, no two traders are exactly the same, they may take very similar trades, but this does not mean that they are using the exact same strategy, we all create our own variations of them that suit our own personalities better. You need to build up your own knowledge base and to work out exactly what it is that you enjoy about reading and what you are good at. Once you have done this you need to select a strategy and a style of trading that suits you and that you have a good understanding of. Once you have done this, you will then need to continue to learn more, but the important thing is that you stick to that same strategy.
The importance of sticking with it is that you gain a much better understanding of the ins and outs, chopping and changing is never a good thing when it comes to trading as results can only be considered over a long period of time, and not simply after one or two trades. So be sure that once you have your strategy, you stick to it and work on it.
Patience is something that a lot of people unfortunately lack, yet it is such an important trait to possess when it comes to trading, without it, you will become stressed, frustrated, and will most likely start putting on trades that you probably shouldn’t. Patience allows you to wait for the right moment to put on your trades, if the markets are not yet in the correct state or they do not line up with your entry requirements, then you need to exercise patience and hold off making any trades, if you do then it will be considered a bad trade which could lead you to lose out and having some potential losses.
Make a Plan and Follow It
This is probably one of the more important rules to remember, once you have created a plan, it is paramount that you stick to it. This is relevant for a number of different reasons, the first being that you are not able to work out whether a strategy has been successful for a longer period of time. You cannot judge a strategy unless you have been using it properly for at least one month. The other main reason why you need to stick with it is that your strategy and trading plan will also have your risk management plans built into them, as soon as you start doing things differently it is putting this out of whack. This can then result in larger losses or smaller profits, making your overall strategy far less profitable in the long run. The moral of the story is to simply stick to your trading plan and strategy once they have been created.
So those are just some of the rules that you need to be considering when you start or continue to trade. There are of course many more and most likely some that you have made up for yourself, once you have your rules, keep to them and it will make your trading journey a lot simpler and hopefully a lot more profitable.