Best 10 Rules for Successful Trading (Simple & Effective)

If you’re thinking about trading stocks and making money from it, you might have come across phrases like “plan your trade and trade your plan” or “keep your losses small.”

At first, these might sound like confusing jargon, but they’re actually valuable pieces of advice.

Here are 10 rules for successful trading that, when put together, can improve your chances of succeeding in the stock market:

10 Rules for Successful Trading
Rule 1: Have a Trading Plan
Rule 2: Treat Trading as Your Business
Rule 3: Use Advanced Technology
Rule 4: Protect Your Money
Rule 5: Learn Everything You Can
Rule 6: Keep Your Risk Small
Rule 7: Develop a Trading Strategy
Rule 8: Minimize Your Losses
Rule 9: Know When to Stop
Rule 10: Keep Your Eyes on the Prize

1️⃣ Have a Trading Plan

A trading plan is like a roadmap for your trading journey. It’s a set of rules that tell you when to buy, when to sell, and how to manage your money with every trade.

Thanks to modern technology, you can test your trading ideas without risking real money. This is called “backtesting.” It lets you see if your strategy would have worked using historical data. Once you have a plan and it passes the backtest, you can use it in real trading.

But remember, sometimes your plan won’t work. That’s okay. It’s important to stick to your plan and not make random trades, even if they make money. Changing your plan on the fly is not a good strategy.

2️⃣ Treat Trading as Your Business

Trading isn’t a casual hobby or a regular job. It’s more like running a business, whether it’s your full-time gig or a part-time venture.

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Treating it as a hobby means you might not put in the effort to learn and improve. Treating it like a job can be frustrating because there’s no steady paycheck.

Trading is a business, and like any business, it has costs, losses, taxes, risks, and stress. You’re basically the owner of a small business, so you need to research and plan to make it successful.

3️⃣ Use Advanced Technology

Trading is a competitive field. Assume your trading counterpart is using every tech advantage available.

With charting platforms, you can analyze markets in endless ways. Backtesting your ideas with historical data prevents costly mistakes.

You can get real-time market updates on your smartphone, keeping an eye on trades from anywhere. Even things we take for granted, like fast internet, can boost your trading performance.

Using technology wisely and staying updated with new tools can be both enjoyable and rewarding in trading.

4️⃣ Protect Your Money

Saving up the cash to fund your trading account takes time and effort. It’s even harder if you have to do it all over again.

Protecting your trading money doesn’t mean you’ll never have losing trades. Every trader faces losses.

Protecting your capital means avoiding unnecessary risks and doing everything you can to keep your trading business intact.

5️⃣ Learn Everything You Can

Think of it as a never-ending education. Traders should always be focused on learning more. Remember, understanding the markets and their complexities is an ongoing journey.

Digging into research helps you understand the facts, like what economic reports mean. Paying attention and observing the markets hones your instincts and helps you grasp the subtleties.

Global politics, news, economic trends—everything, even the weather—affects the markets. The market is always changing. The more you comprehend past and current market trends, the better prepared you are for what’s ahead.

6️⃣ Keep Your Risk Small

Before using real money, ensure the funds in your trading account are expendable. If not, save until they are.

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Don’t use money for important stuff like college or the mortgage. Never think you’re borrowing from these vital obligations.

Losing money hurts. It hurts more when it’s money you should’ve never risked.

7️⃣ Develop a Trading Strategy

Invest time in crafting a solid trading plan. Ignore the “get rich quick” schemes online. Base your plan on facts, not emotions or hope.

Patient learners handle the overwhelming internet info better. Learning to trade takes time and fact-based research, just like any new career.

8️⃣ Cut Your Losses

A stop loss is the max risk you’ll take in a trade. It can be a dollar amount or a percentage, but it caps your risk. Using it reduces trading stress since you know the most you can lose on a trade.

Not using a stop loss is a bad practice, even if you win. Exiting with a stop loss, even a loss, is good trading if it aligns with your plan.

We aim to exit all trades profitably, but it’s not always real. Stop loss ensures losses are limited, protecting your capital for future trades.

9️⃣ Know When to Quit

Two reasons to stop trading: a bad plan or a bad trader.

A bad plan means bigger losses than expected in testing. It happens; markets change or volatility drops. In that case, revise the plan or create a new one.

Stay rational. It’s time to adjust the plan, not end your trading venture.

An ineffective trader follows a plan but struggles to stick with it. Stress, bad habits, and inactivity play roles. Unfit traders should take a break. After addressing issues, they can return.

🔟 Keep Your Eyes on the Prize

Stay focused on the big trading picture. Losses are part of the game. A winning trade is just one step to success. Cumulative profits matter most.

Once you accept wins and losses as routine, emotions impact your trading less. While you can be happy about a great trade, remember a losing one might be next.

Realistic goals matter. Your business should make a reasonable return over time. If you expect instant riches, you’re setting up for disappointment.

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☞ 10 Best Rules for Successful Trading FAQ

What Should I Do When My Trade Is Profitable?

In a bull market, making money in trading can seem straightforward, but knowing when to lock in profits can be challenging. To remove emotions from the process, consider employing trailing stops.

These automated stop orders adjust as the market moves in your favor, ensuring you capture profits while safeguarding against unexpected reversals.

How Much Should I Risk on Each Trade?

Your trading plan should already include a predetermined stop loss, which determines how much you’re willing to risk on a trade.

You can use a fixed dollar amount, like $500, or a technical level, such as breaking the 50-day moving average or reaching new highs.

Always remember that having a stop loss is a vital part of your trading plan to manage risk effectively.

What Are the Essential Components of a Trading Plan?

Your trading plan should align with the basis of your trade. If your decision is driven by fundamental factors like economic reports or official statements, your plan should reflect this.

Similarly, if you rely on technical analysis, such as staying above the 50-day moving average, your plan should be in harmony.

Adjust your position size to ensure it accommodates the stop loss without risking your entire capital on a single trade.

How Much Capital Should I Allocate to a Single Trade?

The size of your position is a critical factor in your trading strategy’s success. Ensure that your stop loss can withstand a modest loss relative to your overall trading capital.

For instance, if your stop is $1.50 away from the current market price, and you’re willing to risk $500 on the trade, you should calculate your position size accordingly. In this scenario, it would be approximately 333 shares.

This calculation allows you to manage your risk effectively while utilizing a specific trading strategy. Keep in mind that a smaller position uses less trading capital while still enabling you to pursue your chosen strategy.

Final thoughts

The rules we’ve discussed all share a common thread: a focus on managing risk and safeguarding your capital. Ultimately, your goal is to profit from the markets, but it’s crucial to acknowledge that losses are an inherent part of trading.

The key lies in minimizing these losses to ensure you can continue trading and discover more winning opportunities.

Experienced traders have mastered the art of recognizing when to cut their losses. This skill is an integral part of their trading strategy.

Additionally, they know when to secure their gains. This may involve adjusting their stop loss to protect profits or cashing out at the current market price. In any case, it’s essential to remember that there will always be new trading opportunities on the horizon.

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Pavlos Written by:

Hey — It’s Pavlos. Just another human sharing my thoughts on all things money. Nothing more, nothing less.