Trading is a process of constantly looking for buying and selling opportunities in financial markets. The price gets updated constantly by traders who buy or sell it at any given time. Therefore, if one has the knowledge to take advantage of these changes in price, they could potentially make money trading at any given time. While that’s the gist of it, there are 6 key rules to keep in mind in order to be successful in trading.
1. Plan It Out
Before you do anything, it’s important to make a solid plan. Trading is not gambling, and when you lose money, it’s easy to point fingers at yourself for doing something without thinking it through. Do your research before jumping into any trade that may result in profit or loss.
Gathering knowledge about trading is important, as it can help you make sense of what’s what, and the different trading strategies out there. You can find out about things that will help you create a good plan in different books, this link can provide you with some facts about hull moving, and online forums can be a good source of information from peers. While developing a plan is important, you should still remain flexible, so that you can adapt when needed, and not feel like you’re too rigid in your plan.
2. Capital Preservation
The biggest reason why traders go bust (lose all of their money) is because they’re following a plan, but end up blowing their account in the process. It’s very easy to blow your account if you don’t know what you’re doing when trading stocks or currencies. Capital preservation should be your number one priority when developing your strategy. Generally speaking, you should never invest more than 10% of your capital into one trade when you’re just starting out.
The thing about trading is that things go wrong when you least expect it, and if you lose too much of your original investment, you won’t be able to make a comeback for a while. Even if everything goes right in the span of a month or two, if half of your capital is wiped out, you will not be able to recover. So the key lesson is to always protect your original investment, and use it as a backup if things go wrong.
3. Keep An Eye On Trends
Having a plan is important, but not at the expense of ignoring the market. If you don’t notice the market going a certain way, and you focus all of your attention on your plan, you may miss out on some incredible opportunities. If you’re not checking the market every 5 minutes, you can get away with it if you have experience. But for beginners, it’s important to switch between following your plan and keeping an eye on the market. The last thing you want to do is make a decision based on gut feelings/emotions which can be extremely costly. Trend following is key in trading, but it’s hard to develop this skill overnight. It takes years of experience to become good at reading the market properly, so take your time with it.
4. Know When To Stop
One mistake novice traders make is holding on to trade too long, just because they’re feeling attached to their original investment. While capital preservation is important, you have to be willing to accept defeat if your plan was wrong from the start. There’s no point in holding onto a losing position because you’re upset that you made such a large loss. You can’t win them all, but you can learn when to move on to better things.
The markets are extremely unpredictable, so it’s hard to know what the best time to exit is. Sometimes, if you’re just holding onto your investment because you don’t want to sell low, it can lead to further losses down the road. This is something that will come with experience, so it’s best to not be too attached to your original investment.
5. It’s Not Personal
It’s easy to blame yourself for making a mistake in the stock market because it comes with such high risk. But when trading, you will make mistakes, everyone does! The key is not to dwell on them and move on to something else. Trading is much like sports in that sense: if you’re defeated, then forget about it and focus on the next match. If you really want to succeed in trading, you need to be able to leave your emotions behind and move on quickly if something goes wrong.
On the flip side of the coin, you don’t want to be too eager about your wins. You have to keep a cool head in order to deal with all of the inevitable fluctuations in the market, and when you’re feeling too high from your winnings, it can lead to further losses down the line.
6. Go For The Safe Trade
If you have any doubts about a trade, it’s best to pass on the opportunity and wait for something better. If you’re not completely comfortable with what you’re doing, then wait for another opportunity that may pop up if things go sideways. It’s often said that a trader has to be willing to live with the results of his/her choices, and if you’re not comfortable with it then don’t trade at all. In trading, you will have more losses than wins, but only go for sure things when you’re making a decision. It’s better to wait rather than take your chances on a risky trade that may not pan out in the end.
Knowing how to tell if someone is overselling you on a product or trying to take advantage of you is an important part of trading as well. It’s important for people to realize that being able to read someone is just as vital as being able to read the market, and it comes with experience once you have witnessed enough transactions throughout your life.
Being a good stock market trader takes skill, knowledge, and experience. It’s also one of the riskiest ways you can invest your money, so it’s important to learn from others who have been through it all before. Reading a few articles on the subject is a great way to start, and you can never know too much about what you’re getting into.
While it may seem like it’s too slow, starting off with just the sure things is a good way to get your foot in the door of the long-term market. You’ll learn more about yourself as well as how to make some smart investments down the road once you have enough experience under your belt.
