5 Top Rules

5 Top Rules Every Trader Should Follow Over the past half-decade, financial trading has become more popular than ever before, aided by investment platforms that allow people access to instant forex funding and opening up entirely new markets to invest in. If you are new to trading, there is a lot of information to take in, a lot of seemingly contradictory strategies in play and the inevitable emotional pressure and stress that comes from managing accounts with significant amounts of money in them. This is particularly true if you trade forex, because the market is so large, so liquid, and profits tend to be made when trading at volume. However, whether you are just starting out or are ready to up your game, here are five simple rules you should follow, with an example or two of why this is a good idea. Develop A Trading Plan And Stick To It A failure to prepare is preparing to fail, and one of the first steps any new trader should make before they invest any serious capital is to develop a trading plan. This is your ultimate guide on what trades to make, when you should buy, when you should sell, position sizing relative to your portfolio, and what systems are in place to manage and mitigate risk. These can vary from a few bullet points with more general rules for the types of investments to make, to extremely long, detailed examinations of the ideal conditions required before a trade will even be considered. They can also include set variations for when you should increase and decrease position sizes relative to your success, as well as how to set stop-loss order ratios to minimise losses and make consistent gains. Trading plans are especially important in forex because of the money involved and the more regular use of leverage to maximise returns. A trading plan is vital because it front-loads much of the decision-making; you develop an approach when you have all the time in the world and none of the pressure to create a winning strategy, so all you need to do on the trading floor is follow the plan. However, any plan is worthless if it is not adhered to, so once you have a plan in place, stick to it and wait at least a few months before you alter it again.

Put Your Eggs In Different Baskets One of the most important aspects of financial trading and risk management is diversification, but to understand what it means and how to manage it effectively, it is important to know your market and how it tends to move. Typically, it means that you should have a wide range of investments that tend to move in different ways. Your portfolio should not be dominated by one or two outsized positions that could demolish your entire account if they go south. However, one aspect that goes somewhat underappreciated is that it is not just about how much is invested in a specific currency pair but in other similar assets that correlate with each other. If you have two investments that rely on the British pound remaining strong, for example, then you will receive a double reward from anything that causes it to increase in value and a double risk if both pairs hit your stop-loss limit. Try to have the portfolio equivalent of each-way bets; that way, you can succeed even if some of your investments do not pan out due to reasons beyond your control. Focus On The War, Not The Battles Success in financial trading is about focusing on the bigger picture, but given just how much is happening in the market every single second, it can be easy to lose track of how you are doing and how your portfolio is trending. It can be easy to experience a trade that goes badly and feel really bad about it, even if the rest of your portfolio is doing well and you are still beating the market trend and your targets. Focusing on the bigger picture and having confidence in your trading plan will stop you from making potentially rash decisions that could turn an isolated run of bad luck into a string of bad habits. If you followed your trading plan and traded with discipline, you will be rewarded for it in the long term. Conversely, if you get lucky with one big trade, you will not get away with that level of recklessness forever. Do Not Trade The News Every trading strategy and trading plan has an acceptable level of volatility. There needs to be at least some level of market movement otherwise, there is no opportunity to make any money, but too much unpredictability can make it easy to buy or sell at the absolute wrong time. A general rule, one that we enforce on some of our non-funded trading accounts, is that you should not trade the news, in the sense that you should avoid trading within a ten-minute window of any major news story that could impact forex prices.

The reason for this is that the moments leading up to and immediately after a major news story are when a lot of people will either buy or sell, creating a maelstrom of chaos that could cause prices to reach disproportionate highs and lows before they finally normalise. Success in forex is about consistency, not capitalising on chaos. Trade Only As Often As You Need To Financial trading can be highly rewarding, but it can also be somewhat stressful due to the pressures involved, particularly if you feel like you have to constantly interact with the markets and focus on the price action. Ultimately, you only need to trade as little or as often as you need to. Whilst we have a minimum number of trading days you need to do, exactly how much you need to interact with the market will depend on your strategy. Whilst there will be day trading strategies that will require constant searches for marginal gains, some trading days will involve scanning your portfolio, checking your stop losses and leaving the market to it. Avoid the temptation to overtrade or enter positions just for the sake of it.