June 26, 2017

10 Commandments Of Trading

If you are interested in becoming a successful and profitable trader, it is important that you understand the importance of what you should be doing. It is suggested that most new traders only spend a mere few minutes online researching and learning a few phrases before jumping straight in. They will find out how to do the basics, and then learn on the job.

To be successful, you should adhere to the ten commandments of trading which have been designed to guide all new traders, greatly increasing the odds of succeeding in the trading markets.

1) Always Use a Trading Plan

Make sure you stay focused and plan well if you want to become successful. You can do this by creating a trading plan, which is essentially a written set of rules that specify a trader’s entry, exit and money management criteria. Many traders skip this step as it is fairly time consuming; however, if you really want to be successful at trading, it is important that you use one.

Deviating from your trading plan can result in decisions being made quickly and without thought, which may cause you to lose money unnecessarily.

Trading now is far easier than it ones was, as many platforms offer demo accounts, which allows you to easily test a trading idea, before you risk real money. It also gives you the chance to see if your trading plan is viable, and how it will work.

Once you have trialled your plan, and you are happy with how it is working, and it is showing good results, you can then use it in real trading. From here on though, make sure you stick to the plan. Trading outside of your plan is considered to be poor trading, even if they are winners, and will destroy any expectancy that the plan had.

2) Patience Is Essential

To be successful at trading, it is so important that you are patient. Remember that you are unlikely to get rich quickly, especially if you are trading things like currencies. It is vital that you start off simple, and getting to grips with that first before you set your sights higher.

Do not expect too much, and understand that it is unlikely that even after two or three years, it is unlikely that you will become a millionaire purely from trading just one asset. This is because there are often too many factors that are out of your control as the trader; so, instead, try to focus on the journey, learning and picking up tips along the way, and carving out a career for yourself as a profitable and successful trader.

Sticking to this, and being patient will eventually pay off and you will become a very successful and profitable trader.

3) Never risk what you cannot afford to lose

One of the biggest mistakes that you can make as a trader is to risk money that you cannot afford to lose. Assume that you will lose your money, as opposed to the other way around, and see all profits as a bonus and not as a given. This includes checking for hidden fees and costs that are likely to be revealed in the small print, like ensuring that you have a minimum amount in your account to prevent a monthly fee being charged to you. Mistakes and clumsiness can be incredibly costly, especially if you are trading with money that was designed to be used for something else.

If you find that the money you have in your account is not expendable, stop trading and save until the money that you have is. Never use money that is allocated for something else, as a way to build the fund up – as soon as you start doing this, the likelihood is that you will become unlucky and will lose your money. You should always be prepared to lose all of the money that has been allocated to a trading account.

Losing your money can often be quite stressful, without using money that was for something else and you can ill afford to lose.

4) Know when to stop trading

One of the most important things to remember when trading to know when it is time to stop – whether this is because of an ineffective plan, or an ineffective trader.

If your trading plan is not up to scratch, you will encounter much greater losses than you might have anticipated. This might be for a number of reasons – the markets might have changed, volatility within a certain trading instrument might have lessened, or it could be that your trading plan is simply not performing like you had hoped it would. Instead of continuing, and hoping that your luck will change, you should stop trading immediately, and make changes to your plan where necessary. If you have to, start your trading plan again. You will not get anywhere with a poor trading plan, and it is a problem that must be solved should you wish to make money in your trading.

If you are an ineffective trader, you will be unable to follow your trading plan and should stop immediately. This can be down to a number of different things, such as poor habits, or even a lack of physical activity. If you have a lot going on outside of trading in your personal life, and are not completely focused, it is worth taking a break until these problems have been dealt with. Not focusing completely will see unnecessary losses.

5) Make sure you stay focused!

This leads on nicely from the previous point. It is so important to stay focused, particularly on the bigger picture when it comes to trading. Like we have previously said, do not become surprised by losses; instead, expect them – it is all part of trading. Be happy with a winning trade, and try and learn from them. Accept that both are needed in order to learn and to become more successful.

Stay focused by setting yourself realistic goals. Don’t expect huge returns if you only have a small trading account. Work with what you have, and learn from both wins and losses and keep focused and sensible. 

6) Choose a platform that is easy to navigate

Before you start any sort of trading, it is important that you have carried out your research with regards to which platform you wish to choose. Make sure that you understand exactly how it works prior to trading any money, as some can be very intimidating and complicated. It is so important that you know how to navigate your platform, and get used to how it works in order for you to be able to trade successfully.

The important things to consider when trading on any platform is whether you require any special software or online trading tools in order for you to be successful. Find one that you find simple as easy to use, as this will allow you to focus on your trading needs, helping you to avoid making any costly mistakes.

7) Think Long Term

Like we say, with trading, wins and losses will come and go, but it is what you choose to do with these experiences that will affect you in the long term when it comes to trading. In order to be really successful when it comes to trading, you need to consider it in the long term. Don’t try and go too big, too soon, and instead focus on opportunities that come when a stock or market have been dismissed by the market, or when transportation stocks have gone through long and out of favour stretches, as it is these that are more likely to make you considerable amounts of money.

Thinking in the long term, means that you really have to consider all of the points above. You need to stay focused, plan which platform you are going to use well, know when to stop, and not to trade with any money that you cannot afford to lose. Considering everything, will automatically help you to plan for the long term.

8) Make sure you fully understand the Trend direction

The key here is to really educate yourself prior to trading with any real money. Make use of demo accounts, and really get to understand your trading platform and how it works. If you are new to the trading market one of the most important things that you can do is to recognise trends, and be able to identify then quickly. Trends are your friend and to ignore them will quickly increase your chances of failure. It can sometimes be difficult, and even frustrating at times, but it really will help you to become a successful trader.

To identify different trends, it is easier to look at a larger timeframe, where you easily see the peaks and troughs as they occur.

You can then use this this to help predict what will happen to that trade, increasing your chances of becoming successful, and winning your trade. As an example, if you are wanting to trade on the long side, you would need to look at buying near support levels or at the lower edges of the trend channels, as it is at these places that the risk to reward ratios are at their most favourable. If you are looking to short sell, you should be doing the opposite. This will help to show you to importance of looking at the direction of the trend, and how it can help you in your trading predictions.

9) Start small and grow as you learn

If you are new to the markets, it is important to start with a smaller account and overtime, build this into a larger one. You are bound to make a few mistakes when you first start trading, and losses will be much smaller and easier to manage with a smaller account than it would be with a large one.

One of the most common mistakes than people tend to make when they are new to trading is that they are desperate to make money quickly. However, as you will now know, patience is key, and you are not going to make a lot of money in one trade, unless of course you are particularly lucky. Trading in this way, particularly when you are new will end up overwhelming you, and you will end up struggling, which will inevitably lead to losses, and you will fail to make any money.

Rushing trades, will put you in the position where you start to over trade and make impulsive decisions. Traders with larger accounts tend to not do this, as they are not under the same pressure, as they do not feel that they need to make quick trades, but also that they have more experience. Try and get into this way of thinking, concentrating on trading well, as opposed to quickly and you will find that your account will naturally grow.

10) Take the news with a pinch of Salt

Many new traders will obsessively read the news to find out what is happening in relation to stocks and the financial markets. However; to trade effectively, it is often worth taking what is said in the news with a pinch of salt. This is because often the people who are delivering the news or posting on various social media sites, will actually have a limited knowledge of trading. They might also have a hidden agenda behind why they are delivering this news to you. So, whilst it can be good to read news stories, relating to your trade, do try and take it with a pinch of salt.

Instead, make sure that you are tracking charts, because this will give a much clearer indication on what is actually happening with the company. Take the news as interesting reading, but do not rely on this to change your strategy.

Image Credit

The Importance Of A Trade Plan – Intelligent Forex Trading

10 Things You Can Do Right Now To Build Patience While Trading. #5 Will Change Your Life, As Well As Your Trading.

Forex Trading Risk Management

Know When to Stop Trading – Trade Setup 3.30.16



References And Further Reading:

  • Mindful Sharetrader; 10 Things You Really NEED To Learn Before Trading The Stock Markets
  • Investopedia; Top 10 Rules For Successful Trading
  • Forbes; 10 Things You Absolutely Need To Know About Stocks
  • Skint Dad; 3 Essential Things To Know Before Trading Forex
  • Huff Post; 5 Things You Need To Know About Online Stock Trading


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