Trading rules are a set of guidelines that traders must follow to be successful in the long run.



If you are making Losses continuously! There are times when you must hang your hat and stop Trading.

Trading rules are a set of guidelines that traders must follow to be successful in the long run. Here are some basic trading rules that traders in any market must follow. These form the core of the success of your trading strategy.

  1. Never trade without a trading plan in place. What exactly is a trading plan? It is a written set of rules that specifies a trader’s entry, exit and money management criteria for every purchase. The key to any trading plan is the back testing based on live data. Today it is easy to test a trading idea before risking real money with the use of backtesting.
  2. If you want to be successful in trading, treat it like a Business. That means; you must approach trading as a full-time business, not as a hobby or a part-time job. Trading can be frustrating as there is no regular pay-cheque but that is why you must treat it like a business with all the concomitant uncertainties.
  3. To gain competitive edge in trading, make the best of technology from stock selection to execution to back testing and monitoring. Set alerts to make you job easier. User-friendly charting platforms give an infinite variety of ways to analyze markets. Using technology to your advantage can be profitably in the long run.
  4. Your first job is to protect your Trading Capital. Ensure that you are trading with money you can afford to lose without worrying about paying your kid’s school fees. Protecting capital entails not taking unnecessary risks and doing everything you can to preserve your trading business. You need to set stop losses at multiple levels.
  5. If you want to be a good trader, you must be a continuous student of the markets. It is important to remember that understanding the markets, and all of their intricacies, is an ongoing, lifelong process. Above all, at the core of any successful trading strategy is the tacit admission that the market is always smarter than you.
  6. This may be a repetition, but risk only what you can afford to lose without losing your sleep. Make sure that all of the money in that trading account is truly expendable. Traders must never allow themselves to think they are simply borrowing money from these other important obligations.
  7. Develop and fine tune a methodology that is based on pure facts and data and it is worth the effort. Consider this: if you plan a new career, you would study at a college or university for at least a year or two before you were qualified to even apply for a position in the new field. Your approach to trading should also be along similar lines.
  8. Never trade without a stop loss; that is the raw material of any trade. Stop loss is based on the amount of risk the trader is willing to accept with each trade. Stop loss can be a price level or a percentage but it must limit your losses to manageable levels. Not having a stop loss is bad practice, even if it leads to a winning trade.
  9. There are times when you must hang your hat and stop Trading. It could either be because you have an ineffective trading plan or you are being an ineffective trader. There are different reasons and these could be external or internal. But when things go wrong beyond a point, just remove your batting gloves, hang up your boots and rethink.
  10. Let your head rule over your heart; always. Stay focused on the big picture when trading but don’t allow a losing trade to surprise you. It is the cumulative profits that make a difference over time. When in doubt use data rather than being led by greed and fear. Emotions can be quite expensive in trading. Above all, set realistic goals.

Trading is not the golden key to any treasure. Like any business, your focus should be to earn a reasonable return in a reasonable amount of time. The key to reaching that goal is the cardinal rule that you must learn to manage your risk.

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