5 Rules For Successful Trading
March 19, 2020
Trading is simple, but not easy. Traders have difficulty succeeding simply because they are unable to follow clear rules over extended periods of time. So what are the rules that every trader should follow?
Rule number 1: Only invest what you Can Afford to Lose.
Only invest money you can afford to lose, never ever borrow money or take a loan from the bank to invest in forex, or any other type of investment. Because if you do, you will get emotional and make irrational mistakes.
Rule number 2: 1% Risk per Trade.
We only risk a small portion of our account per trade. We enter with 1% risk per trade 2% max but let’s keep it 1% for now. We enter with a fixed risk per trade, not with a fixed stop loss in pips, nor with a fixed lot size. That’s a common mistake many traders make.
Rule number 3: Three Confluences Trades.
Trading is nothing but a game probability. Moreover, we consider ourselves risk managers not only traders, as the only thing we have control over is risk. The market can go anywhere. All we need to do is to put the odds in our favor to have an edge over the market. To do so, we have to be on the winning side of the market by entering trades only when we have at least three confluences, three things telling us to buy or sell. One confluence may be random.
For example, we only enter when we have a pattern, support, and divergence. And our rules have to be objective following a well-defined back tested trading plan. I personally use RichTL that helps traders make objective technical analysis by simply connecting the dots.
Rule number 4: 1 / 2 Risk Reward Ratio.
Our second edge is going to be through risk and money management by entering with a positive risk-reward ratio. Remember, it is not about how many trades you win, what matters is how much you win when you win, and how much you lose when you lose. That’s exactly why we enter with a ½ RRR, which means we always target double our stop loss. This way even with a 50% win rate, we are still profitable.
Rule Number 5: Emotional stability.
In the trading world, emotions are considered the enemy of traders. Knowing how to control emotions while trading can prove to be the difference between success and failure. When getting into a bad trade, the trader who can manage his psychology well will be able to minimize risk, while the trader who is emotional may make the situation worse.
Therefore, knowing how to control your emotions very crucial in order to succeed in Forex trading.
In fact, our 5 rules are all connected in a way or another.
If you invest money you can’t afford to lose or enter with 10% risk per trade, chances are that you will get emotional and not follow your trading plan objectively by closing your trades before reaching 2R or even entering trades that are not according to your strategy
In parallel, even if you invest money you can afford to lose and enter with 1% per trade, you won’t be consistently profitable if you don’t have a well-defined strategy that gives you an edge over the market technically or through risk management.
In brief, stay away from trading if you don’t have these 5 rules. And I will see you in the next video.