Rules for Successful Trading

By | May 1, 2014 1:34 pm

1). Preparation
Once you get your trading system and position size in place you must use the amount you will risk on each trade to determine your risk of ruin. If your risk of ruin is not zero then you will eventually blow out your account. Risking 1% to 2% of your capital in any one trade usually gives you a zero percent risk of ruin but it also depends on your systems win/loss ratio. But the point is to test any system with a minimum of 30 trades first then determine your risk of ruin. I would advise a larger sample size in multiple market environments a trend following system that looks brilliant in a trending market may result in a 50% draw down in a choppy or range bound market.
2). Enlightenment
Your most important goal is to lower your risk ruin to zero. In trading, the trader with the best ability to cut losses short wins. Simple trading strategies work the best based on traditional support and resistance levels while trading with the trend on either reversals or break outs. The 10% of winning traders in the market win by treading where others fear, buying on break outs when they first occur and going short when a new low is made, or buying into key reversals when a security finds support or resistance and reverses at the end of a monster trend.
3). Developing a trading style
You must choose your own personal style of trading, swing trading, trend trading, etc. You must also trade based on your chosen time frame: intraday, short term, medium term, or long term.
4). Selecting Markets
Ideal markets to trade have high volume, price transparency, liquidity, 24 hour coverage, zero counter party risk, low transaction costs, and are honest and efficient. They also must  have the necessary trading attributes of volatility, research, simplicity, ease of short selling, specialization, opportunities, growth, and leverage. These are the markets that afford you the greatest chances of making money trading.
5). The Three pillars of trading.
Money Management: You must make your trades as fixed as possible. Trade with the same risk, capital, units, percentage, and in the same type markets to manage risk most effectively.
Methodology: Choose a method that works for you and your personality from the ones available. (Dow Theory, technical indicators, patterns, price and volume, etc) Once you have a methodology to your trading, test it in the real world in real time either with micro trades or paper trade, you need a sample size to judge its efficacy.
Trader Psychology: Manage your hope, greed, fear, and pain to stay in the game.
6). Putting it all together
Monitor your performance consistently. You need positive reinforcement that your trading is working by the results you are getting in winning and losing trades. Your equity momentum will show you if you are trading too big or if you are on the wrong track, your P&L does not lie.

Here is a summary:

 

  1. Money Management:
  2. Focus on risk
  3. Trade small
  4. Methodology:
  5. Pick a method that suits your personality
  6. Develop a simple methodology
  7. Avoid the majority, learn to anticipate reversals
  8. Look for alignment in set ups
  9. Good defense wins games
  10. Identify low risk set ups
  11. Know your methodology using software
  12. Psychology:
  13. Deep practice before trading
  14. Expect to lose. Trade to win
  15. Be disciplined. Be patient
  16. Be humble
  17. Be in control

If you trade, you will experience those ten losing trades in a row in any system. You will experience the 10% draw down in your account the only question is when. 90% of people who enter the markets to trade will lose and quit. The majority of successful traders who win in the markets usually start out by losing most of the money in their first trading account. Be warned the market uses maximum adversity at all times, so the majority of traders lose long term surrendering their money to the minority that trade using winning principles.

3 thoughts on “Rules for Successful Trading

  1. saravanan

    well said bramesh , u r doing great job, i am regularly watching ur weebsite & reading articles.

    very nice

    encouraging words

    wt reqd to trade to win

    Reply

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