Trading in the stock market usually is a difficult task for most people, especially new traders. Online tidbits like “plan your trade; trade your plan” and “keep your losses to a minimum” can seem more like a distraction than helpful advice for beginners. However, like any other line of work or business, it is important that you have rules of operation that will guide you on your path to being a profitable trader.
Here are five rules you can implement to be a successful trader.
Use Technology to Your Advantage
Trading is a competitive business in the stock market. Using technology to your benefit is one of the ways to best navigate it. Often, you may take technology for granted. Yet, it can significantly increase your trading performance and execution speed.
As a trader, using charting platforms like MT4 will give you several ways to view and analyze markets from the comfort of your home. Technology allows you to backtest ideas using historical data to prevent costly mistakes. Finally, you get market updates and monitor trades from anywhere using a smartphone.
Treat Trading as a Business
Consider treating trading like a business, part- or full-time and not as a hobby or job. You commit less to learning more about it when you treat it as a hobby. When it’s like a job for you, it becomes frustrating because of the lack of a regular paycheck.
Like any other business, trading incurs losses, expenses, taxes, risks, stress and uncertainties. Essentially you are a small business owner; hence consider researching and having trading strategies to maximize the potential of your business.
Always Have and Use a Trading Plan
Use a trading plan – a written set of rules that specify your entry, exit and money management criteria for each purchase. Moreover, apply practices like backtesting to test your ideas before risking real money.
Here, you use historical performance data to determine the viability of your idea before investing. Then, once you develop a trading plan and get good results from backtesting, you can use the plan in actual trading.
Trade Only What You Can Afford to Loose
Ensure that all the money in your trading account is expendable before you start trading real cash. If it’s not, you should keep saving the money until it is. Also, avoid allocating the money for your kids’ college, paying the mortgage or other important obligations. You are not simply borrowing from these, and you should only risk money that won’t be traumatic to lose.
Learn, and Keep Learning
Trading is a continuing education that you should become a student of. As a trader, remain focused on learning more daily. Think about all the impacts world politics, news events, economic trends, weather, etc., have on the markets.
Remember, the market is dynamic, and it is vital that you understand the past and current markets to stay well prepared for the future. To do this, do complex research to understand the facts and focus and observe to sharpen your instincts and learn the nuances.
Understanding the above rules and how they work together can help you establish a successful trading business. This of course is in addition to the basics, like always having a stop loss, knowing when to take your profits and trading in perspective. Doing so will significantly increase your odds of success in this competitive trading arena.
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