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30.12.2023

The five rules of a successful trader

Today we are going to talk about five trader's rules that help you get consistency in your trading. In this short post you will learn what professional traders do. You can take them as a suggestion for what you can improve in your trading. A profitable trader is first and foremost a disciplined trader. Hence, most of the principles will 'revolve' around getting a routine that allows you to build self-control. Welcome to the post!

 

1. Keeping a trading diary

 

Keeping a trading diary is mandatory! Why? Firstly, you develop the habit of monitoring your trades. Secondly, you can easily find out the statistics of your trading. Getting the statistics allows you to put together a good risk management plan. You know perfectly well which days and times are the best for trading. You can also monitor your set-ups by adding a link to the analysis in your journal. Keeping a diary is not just about routine checks of what you are doing. It also allows you to catch errors in your own analysis.

 

2. Controlling losses

 

A good risk management plan and stop loss setting will certainly reduce emotions during trading. Besides, it allows you to limit your losses in a precise manner. Keeping a logbook is one side of the coin, the other is to execute your trading plan diligently. This should include simple information on your loss policy. It is good if you know exactly where you want to exit a trade before entering it. Adopt the principle that a small loss is better than holding on in the hope that it will come out to the upside over time. 

 

3. Checklist of strategies

 

Every trader trades with a strategy. We often think we have it written down in our heads. We are well aware that trading the market is not that simple and we are often overwhelmed by various emotions. To protect yourself from emotional bargain hunting and random market entries, it is a good idea to draw up a simple decision tree. This should include information such as when to enter (which is the signal generator), with what risk we do it, how SL should be set and whether we move it when the position makes a profit, etc. This is very important information, because only with the help of this information is it possible to make a profit. This is very important information because it is the only way we can tell if our strategy is profitable. So try to write down what you are doing step by step in the form of a checklist. Go through it every time you have a signal to throw in a position.

 

4. Take emotions into account

 

Including the emotional factor in your strategy is another key to success. Introduce actions into your trading plan that will protect you from, for example, over trading or an uncontrolled series of losses. If you find yourself in a situation where you can't tear yourself away from the chart after one loss, introduce a maximum daily loss rule, after which you switch off the platform and analyse what went wrong. The maximum daily loss can be set in % or in number of trades. Write out exactly what problems you have and try to find 'mechanical' solutions that you implement into your plan.  

 

5. Control the risk

 

Without a doubt, the element of risk is the second (after mental) most important element of profitable trading. You need to think carefully about reducing it - with a series of losses and increasing it - with a series of gains. It is risk control to a large extent that is the key to gaining the most control in trading. Try to determine what your 'pain threshold' is when it comes to a loss. A loss that you are comfortable with will positively affect your overall trading. You will not feel the need to quickly redeem yourself in the market.