11 Rules of Trading Most Successful Trader Follow
Traders have an advantage over the investors they not only earn in a bullish market but they also earn in a flat or down market.
This is a vital advantage the traders have over investor but traders have to pay the price for the same. Trading involves high-risk high return. Most of the people who come for the first time to the market consider this as an easy money. We believe this is the easiest way to lose money. More than the easiest way its the fastest way to lose money.
The easiest way to make a small fortune is to have a large fortune. Many wars are lost before the final war is won.
Let us not complicate things and put down in point the top rules followed by most successful traders.
#1. Trading Plan
Having a trading plan is the most crucial but most people think that a trading plan starts and ends with a target and stop loss along with risk to reward ratio. One of the most important point one should not plan during the trading hours.
Some of the best ideas a person get is during trading hours and this does not even hold good until the market close. Hence write down an idea which you are getting during the market hours. Check the duration of the trading idea and backtest it over a period of time. Cross check if it matches your risk to reward ratio. If it gives a consistent return over a period of back testing then this can be your trading plan.
#2. Trading Idea with Facts
A trading idea cannot be a random intuitive decision. All your trading ideas have to be strongly supported but facts. Facts could be generated from anything technical analysis, fundamental analysis or demand & supply based analysis.
Never trade on a news or gossip and even on a tip. If you are very impressed with a tipster and you think its going to make you very rich. You are feeling very impulsive to start trading the tipsters idea. Do a simple backtest on the tipster even if its a paid subscription. Don’t mistake that we are talking about trail offer for few days. Do the backtesting for few months or a year and then start following the same. Now the tipster’s results are a fact,
#3. Make use of Technology
With advanced software available along with so much of input of information there are two many overlays and this makes decision making very tough and wrong at times. Technology should be used to your advantage. Make use of technology to make the information available as simple as possible.
Don’t assume that following complex signals and tools gives better results e.i. a myth. More complex the things get more difficult is the decision making and more opportunities are lost. Indeed, an innovation that today we underestimate, similar to rapid web associations, can extraordinarily expand exchanging execution.
Simple formula we follow is KISS
KISS – Keep it Simple Silly
#4. Never Argue with Market
The market is always Right.
The market can never be wrong.
Keeping losses small is very very important. Remember all losses start small.
Do not play the blame game with the market. Just go with the flow of the market. The market gives enough opportunities and we are to be blamed if we miss them. Never try to boss around with the market. Every day you get up to become a student of the market. Market teaches you daily something new.
#5. Risk What You Can Afford
Derivative by its very nature gives leverage. Leverage by its very nature is a Sweet Poison.
Do not risk all your capital on a single trade. Do not trade if you have only the money to make one trade. Have enough capital and trade over a long period of time making with small profit and losses.
Affordability not only means bank balance or account balance but also your sleep overnight. Any trade which doesn’t let you sleep is not a good trade.
#6. Do not Over Trade
Many traders suffer from the daily compulsive trading syndrome.
And most importantly the end of the day should be in profit. So if they make losses during the day they try to trade more and eventually take more risk to cover up the loss made in the early trade.
Trade based on opportunity not on time availability. Don’t treat your trading activity as part-time or free time getting rich theme.
#7. Catch Large Market Moves
Target the larger moves in the market.
The market can go wrong in a small correction or minor directional changes. But trend reversal and large index moves give ample opportunity to get decent returns.
Targeting small and minor dips and correction at times can be very expensive.
#8. Stop your Loss with STOPLOSS Only
STOP never change in the opposite direction of the Target.
The last thing that should stop you and ask you to get out of the trade is stop-loss. Never let anything else to extend the trade beyond stop-loss.
Never fix the stop-loss after entering the trade or during the trade. And changing the stop-loss is the easiest thing to do.
#.9 Trading as Business
Treating Trading as an Instant Quick Rich theme does no good to you. Rather highest loss makers in the market are part time traders.
Free time traders and Part-time traders never really make the buck. Trading is the most boring business if done full-time seriously. Effective full-time traders monitor their trader at a regular time and ensure consistent improvement in trades. One time large profit or erratic profit is not recommended. The outcome of a seasoned strategy is to have small consistent profits all the time.
Disciplined traders are continuously looking for market opportunities. Keep the size small and ensure as many as opportunities are grabbed.
#. 10 Results
This is the most important aspect while looking at trading.
Most look at trading results in terms of days or weeks or even months. Monitoring the strategy over a period of time is important. But taking a decision should be usually in a year. Just like any other business were financial statements are prepared at the end of the year.
This should be done in a similar fashion.
The last and the most important point. All your risk management should focus on capital protection. To stay in the market and to trade capital is very important.
Gathering the capital required for trading is a tough task. To lose it all is very painful and should never happen. Because if that happen to raise capital again for trading would be very tough. Using the right opportunity and not over trading along with proper risk management is the key to capital protection. To stay in trade you have to protect the capital.
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