Rule 1: Create a trading plan
Are you going to trade the FX market? Or are commodities where you think you can turn a profit?
When creating a trading plan, you should focus on specific areas and develop and test a strategy with a demo account before starting actual live trading. For more information about creating a trading plan, read this article.
Rule 2: Stick to your trading plan
When you first start trading, it might be tempting to explore ambitious trades and complicated techniques. Don’t! This is a leading reason why traders fail. Learn the basics in the Skilling Academy, find a style and setup that suits you and one you are happy with and then you will be ready to go. Once you do start, be disciplined and follow your trading plan. Having put time and effort into your plan, don’t blow it on half-baked ideas or gut instinct. Having said that, never stop testing and/or tweaking your strategy according to the changes of market conditions.
Rule 3: Trade liquid instruments
This simply means you should stick to popular instruments where there’s lots of action. The major pairs are the most liquid pairs in the FX market. The major pairs are EUR/USD, GBP/USD, USD/CHF, AUD/USD, USD/JPY and USD/CAD. The main focus is on these pairs. The danger with trading less popular, less liquid instruments is that you’re more vulnerable to sudden price changes. Trade these instruments when you have more experience. In shares, it should be trading in big solid companies, same for commodities – go with the stable ones!
Rule 4: Try not to trade before major news releases
Breaking news can break your bank as it can cause a lot of volatility and unpredictable price movements in the market. Usually, the spreads are wider because of the volatility, and it is not recommended to stay in the market with open positions if you are new to trading. Follow the Economic Calendar, observe the market reaction and act accordingly. Once you’ve gained more experience, you might be able to use these events to your advantage, but for now, follow Rule 2 and stick to your trading plan!
Rule 5: Manage your risks
It doesn’t matter how many of your trades are winners – if you’re not in control of your risks you’ll struggle to be a profitable trader. That’s where risk management comes in. For more information about risk management, read this article.
Rule 6: Protect your capital
You should never risk more than a small percentage of your total capital on a single trade. If you invest too much – even on a low-risk trade – you could get wiped out if the markets take an unexpected turn.
By making lots of small trades you’ll be better placed to survive difficult market conditions and make profit in the long run.
Rule 7: Balance your analysis
Try to find a good balance between fundamental analysis and technical analysis when researching your trades. You should never rely on technical analysis alone as breaking economic news can override any trends you’ve spotted.
Rule 8: Always use a stop loss order
Every time you trade, make sure you consider setting a stop loss order to keep any potential losses in check. It’s far better to exit a position early and take a small hit rather than hang on too long and let your losses spiral out of control.
You may use different strategies for stop loss management which is crucial to becoming a profitable trader. You can choose an indicator to help spot your stop loss level or simply just a previous high / low in the price chart, it does not matter – the important thing after opening a position is to set a stop loss for your risk. For more information about stop loss orders, read this article.
Rule 9: Keep your emotions out of it
It’s easier said than done, but you should try to keep emotions out of your trading as much as possible. If you’re feeling nervous about a trade, stop and revisit your research before pulling the trigger. The same goes if you’re feeling excited. Are you making this trade for the right reasons? Don’t rush into anything. Go back and double-check your trading plan.
The markets will always give you opportunities to open positions, you have to be patient and place only good quality trades according to your plan.
Rule 10: Keep a trading journal
This one is a really good idea; keep a notebook with the details of your trades including why you made the trade, your thoughts and feelings about it and the market conditions at the time of trading. This will help you become a more disciplined trader and is a vital tool when it comes to learning from your mistakes.