Trading Rules: Key Rules to Trading Success

Trading concepts

Trading Rules
  • Trading is often viewed as an activity of complete freedom.
  • But to succeed, every trader must set rules he is willing to follow.
  • Rules help traders manage their emotions and relieves them from excessive stress.

Financial trading is not just about numbers, figures, and charts. It is much more than that. Trading is an amalgam of the right knowledge and skills, hard work, consistency, persistence, and right attitudes. Always remember that there is no short cut to success that lasts long. Similarly, financial trading success cannot be achieved without struggle. It is a long road that every aspiring trader must follow in order to reach the destination known as “success.” Being disciplined and organized on that road will make your journey to success easy. Trading rules will help with this.

To be disciplined and organized, you need to strictly follow certain trading rules. We have some most important trading rules that all aspiring traders must follow. Those are the trading rules that successful traders followed and realized their dreams. It doesn’t matter what you trade, the following rules for trading are for you.

Always stick to a single trading plan

The first among the most important trading rules is to stick to a single trading plan. A trading plan must fit your own personality and risk tolerance. It is very easy today to test your trading plan through backtesting before risking real money. Once you have your own trading plan, just stick to it and trade according to your plan. A trading plan must be your anchor in decision making.

Developing a fact-based methodology

It is a most important trading rule to develop a fact-based trading methodology. Your methodology must base on quantifiable facts and not opinions. Avoid being driven by emotions and hopes is the key here. Doug Gregory very aptly says, “Trade what’s happening…not what you think is gonna happen.”

The right mindset and the right attitude

Trader’s psychology is very important in financial trading. You need to develop the right mindset and right attitude for financial trading. Being flexible and going with the flow of the market indicates the right mindset and right attitude. On the other hand, being stubborn, egoistic, and driven by emotions are the worst indicators.

Risk management

Risk management is crucial in financial trading. It is important not to lose trading capital. It doesn’t mean you won’t experience a losing trade. All traders experience losing trades. Proper risk management and avoid taking unnecessary risks enables you to protect and preserve your capital. Choose only those trades that have a favorable risk/reward.

Keep your knowledge fresh and develop skills

Financial markets are never stable and change continuously. That means you need to keep your knowledge fresh and develop your trading skills as well. That is how you can keep up with the pace of the financial markets. That is only possible when you become a student of the market. It is important to note that learning the ins and outs of the market is an ongoing and lifelong process. So, be an informed trader and do your own research and analysis.

Focus and be an expert in a single strategy at a time

Focusing on a single strategy and being an expert in it is also among the most important trading rules. It is better to be a master of a single trader rather than being a jack of all trades.

Avoid overtrading

Overtrading means you have more than five positions at a time which is an ideal way. Overtrading leads you to lose control and make hasty decisions when the market changes. Always remember that you cannot beat the market.

Always have an exit strategy

An exit strategy should always be a part of your trading plan. You must have a plan to exit the winning or losing position. Staying too much on trade might lead you to big losses. Obsession is a negative attitude that always brings unfavorable consequences. So, always have an exit strategy to get out of a position.

Move with the market

It is an important rule of trading to flow with the market instead of going against it. Understand that market is too strong for you to beat. Just flow with it, be patient, and it will reward you as it has several other successful traders.

Always count on stop-loss

Stop-losses are very crucial in taking some stress out of your trading as you already know that you will lose X amount. Even winning without stop-loss is still a bad trading practice. Stop-losses ensure that you have limited risks and losses.

Take a bold decision when the trading plan isn’t working

It is also among the most important trading rules to know when you have to stop trading temporarily. When it becomes clear that your trading plan isn’t effective as it seemed, it is time to stop trading. Stay calm and unemotional. It is not the end of your trading career. It is just a break to reevaluate your trading plan, make some necessary changes, or even go for a new trading plan.

Trade with a bigger picture, trade with a perspective

Trading isn’t about a single trade being successful or unsuccessful or a single good or bad trade. Financial trading is an arena where you will face many challenges. So, focus on the bigger picture. Don’t let yourself be derailed by a single bad trade. Similarly, don’t let yourself be overconfident because of just one good trade. Always remember that cumulative profit matters.

Bottom line

Financial trading is a complex game and it demands discipline and organization. Understanding each of the above trading rules and following them will make you disciplined and organized. Always remember that these are all the most important trading rules that can help traders to be successful. In the arena of financial markets, those who follow the rules increase for themselves the odds of success.

Russell Crane

Russell Crane

Russell is an Algorithmic & Technical Analyst Trader @ PatternsWizard.
His passion is to share his knowledge about TA, patterns & more. Why hope for your trading to work when you can precisely know the performance stat of every pattern?

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