10 Golden trading rules
These rules give you the fundamental guidelines to successful trading. In any case, remember that practice makes perfect so feel free to open a free demo trading account and test your strategies.
- Plan your trade and trade your plan.
Why trade forex? You must have a trading plan to succeed. A trading plan should consist of a position, why you enter, stop loss point, profit taking level, plus a sound money management strategy. A good plan will remove all the emotions from your trades.
- The trend is your friend.
Do not buck the trend. When the market is bullish, go long. On the reverse, if the market is bearish, you short. Never go against the trend.
- Focus on capital preservation.
The most important step that you must take when you deal with your trading capital. You main goal is to preserve the capital. You should not trade more than 10% of your deposit in a single trade.
- Know when to cut loss.
If a trade goes against you, sell it and let go. Do not hold on to a bad trade hoping that the price will go up. Most likely, you end up losing more money. Before you enter a trade, decide your stop loss price, a price where you must sell when the trade turns sour. It depends on your risk profile as of how much you should set for the stop loss.
- Take profit when the trade is good.
Before entering a trade, decide how much profit you are willing to take. When a trade turns out to be good, take the profit. You can take profit all at one go, or take profit in stages. Once you have covered the spread, you have nothing to lose.
- Be emotionless.
Two biggest emotions in trading: greed and fear. Do not let greed and fear influence your trading plan.
- Be an informed trader.
Trade only when you have done your own research and analysis.
- Keep a trading journal.
When you buy a currency or stock, write down the reasons why you buy, and your feelings at that time. You do the same when you sell. Analyze and write down the mistakes you have made, as well as things that you have done right. By referring to your trading journal, you learn from your past mistakes. Improve on your mistakes, keep learning and keep improving.
- When in doubt, stay out.
When you have doubt and not sure where the market or stock is going, stay on the sideline. Sometimes, doing nothing is the best thing to do.
- Do not overtrade.
Ideally you should have 3-5 positions at a time. No more than that. If you have too many positions, you tend to be out of control and make emotional decisions when there is a change in market. Do not trade for the sake of trading.