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Top 10 Rules For Successful Trading.
Top 10 Rules For Successful Trading.
By
JEAN FOLGER
Reviewed by
SOMER ANDERSON
Fact checked by
AMANDA JACKSON
Anyone who wants to become a profitable stock trader needs only spend a
few minutes online to find such phrases as "plan your trade; trade your
plan" and "keep your losses to a minimum." For new traders, these tidbits
seem more like a distraction than actionable advice.
The rules below work together for results that increase your odds of
succeeding in the markets.
KEY TAKEAWAYS
With today's technology, test a trading idea before risking real money.
Known as backtesting, this practice allows you to apply your trading idea
using historical data and determine if it is viable. Once a plan has been
developed and backtesting shows good results, the plan can be used in
real trading.
Sometimes your trading plan won't work. Bail out of it and start over.
The key here is to stick to the plan. Taking trades outside of the trading
plan, even if they turn out to be winners, is considered poor strategy.
Charting platforms give traders infinite ways to view and analyze markets.
Backtesting an idea using historical data prevents costly missteps. Getting
market updates via smartphone allows us to monitor trades anywhere.
Technology that we take for granted, like a high-speed internet connection,
can increase trading performance.
Hard research allows traders to understand the facts, like what the
different economic reports mean. Focus and observation allow traders to
sharpen their instincts and learn the nuances.
World politics, news events, economic trends—even the weather—all
impact the markets. The market environment is dynamic. The more traders
understand the past and current markets, the better prepared they are to
face the future.
Traders who are not in a hurry to learn typically have an easier time sifting
through all of the information available on the internet. If you were to start
a new career, you would need to study at a college or university for at least
a year or two before you qualify to apply for a position in the new field.
Learning to trade demands the same amount of time and fact-driven
research and study.
The idea is to exit all trades with a profit, but not realistic. Using a
protective stop loss helps ensure that losses and risks are limited and that
you have preserved enough capital to trade another day.
Stay unemotional and businesslike. It's time to reevaluate the trading plan
and make a few changes or start a new trading plan.
Once a trader accepts wins and losses as part of the business, emotions
have less effect on trading performance. That is not to say that we cannot
be excited about a particularly fruitful trade, but we must keep in mind that
a losing trade is never far off.
Say you're only willing to risk $500 on the trade, and your stop is $1.50
away, based on a technical price level, from the $20 current market price.
That dictates a position size of approximately 333 shares.
Experienced traders know when it's time to take a loss and have
incorporated that into their trading strategy. Traders also know when it's
time to take profit, so they may move their stop loss in the direction of the
trade to lock in some profit or take profit at the current market price. Either
way, there will always be another trade setup down the road.