The Ten Commandments Of Profitable Trading

The Ten Commandments Of Profitable Trading

If you're looking for an in-depth trading tutorial for newbie traders, expecting numbers, symbols, and complex charts, and hoping to find the perfect strategy to take home huge digits, this is not the right article for you. This piece, however, seeks to take you back to the basic principles of trading; to remind you of the dos and the don'ts every trader, pro or amateur, needs to learn by heart in order to trade successfully and profitably.

1. Thou shalt treat trading as a serious business

Trading demands time, skill, and emotional stability. You should be passionate about what you do, but not overly emotional especially when it comes to profits and losses. You don't simply jump into the market without a realistic plan - you must have a solid strategy and you have to master it. Like business, there's no guarantee of success but you can learn from both winnings and losses in order to thrive.

2. Thou shalt not let emotions get in the way

Impulsive buyers who shop out of stress or boredom lose more money inefficiently than logically focused shoppers who think first before putting goods inside the cart.

In the context of trading, it's easy to make wrong, reckless decisions when you're impulsive and emotionally unstable. You can either open a trade too late or too early. You risk more than you should. You bend your own rules.

Protect you from yourself. Never bend your rules and base your trade upon tactics and strategies rather than impulse.

3. Thou shalt not get overly attached to your last trade

Traders often let results of their previous trade influence their next trade. Such circumstances that can make or break the game separate the pros from the novices; when they have a losing trade, pros simply accept the fact that the money is gone, the trade is done, and they have to move on; novices often trade out of panic or anger to recoup losses.

Make sure you know when to stop. Experts agree that there are two reasons for stopping: an ineffective trading plan, and an ineffective trader.

4. Honor thy technical and fundamental analysis

Fundamental analysis is best at dictating the broad themes in the market that can last for weeks, months, or years. Technical analysis is useful for identifying specific entry and exit points since the technical aspects could change quickly. The marriage of these two is key in impacting price action. The general rule is to trigger fundamentally and enter and exit technically.

5. Thou shalt use risk protection strategies at all times

The markets are moving fast, and gains may turn into losses in a matter of minutes. That being the case, it's crucial to manage your capital and protect your profits is by using stop loss orders. You just have to find the right timing as neither placing stops too tight nor too loose results in profitable trading.

6. Thou shalt not take home profits too early

Winning trades should be bigger than losing trades, right? If you leave the gold mine too soon, then you might not benefit from the other gemstones you might find should you linger for a couple more hours. Give the market room to wiggle and be a little patient with the trends.

The truth is you cannot avoid losses in trading; you can only control them. If you're scared of losing, then you might not be prepared enough to trade. Money management (risk/reward ratio, position sizing, etc) is your basic building block to achieving a consistently profitable trading experience.

7. Thou shalt not risk more than 2% per trade

This is one of the most commonly violated rules in trading. It's a given that the risk of losing trades is inevitable, but risking five years' worth of profits is a different story. That's not fearless – that's just nonsensical.

Guard your capital. Never invest more than 2% of your available capital on any single trade. One trade gone massively wrong can wash out one, two, or even five years worth of profits. By setting a 2% stop-loss for each trade, you'll have to first sustain 10 consecutive losing trades in a row before you get to lose 20% of your account.

8. Thou shalt not be misled by platforms promising definite returns

There's no guarantee of success in trading. With this, you should be watchful of trading software programs that can assure you of winning trades.

9. Thou shalt trade using a demo account

If you're new to Forex or CFD trading and you want to hone your skills or test a new strategy, you may sign up for a demo trading account first for a risk-free trading experience. Almost all trading platforms come with demo or practice accounts which operate in a simulated environment; the account is “funded” with simulated money, enabling you to place hypothetical trades in a fictitious live market without putting real money on the line.

Demo accounts help you as a trader to test the features of the trading platform before funding the account and placing real trades; experiment with a wide array of financial products like forex, options, CFDs, and other derivatives; and become more adept at order entry techniques to improve your trading portfolio and confidence.

10. Thou shalt invest in solid trading education

You shouldn't stop learning. Learn from successful forex strategists and their past performances. Aside from looking elsewhere on the internet, make sure your provider gives you access to credible tutorials, web seminars, and expert financial analysis and commentary. Tools including an economic calendar, graphs, and charts, and trading signals also work to boost your trading performance.

In addition, you should also keep a trading journal to track your previous performances. Reviewing where you went wrong prevents you from falling for the same mistakes in the future.

May the markets be ever in your favor.

Author Bio: Sophie Harris is one of the resident writers for FP Markets, a CFD and Forex Trading provider in Australia with over 12 years industry experience serving global clients. Writing informative content about business and finance is her cup of tea.

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