1) Money spent on education is well spent.
Trading is like any other business – it takes time to learn. Take your time and study it before you commit any money to the markets. The markets can wait for you; there are always more good trades coming up.
The more money you spend on your own education, the less you need to rely on someone else to trade for you and the better your decision-making ability becomes. After all, the ultimate risk of loss falls on you. Why not increase your chances of earning a profit by taking an active role in managing your money?
2) Look for trades that have a high profit potential, a high probability of winning, and a minimum of risk.
“Cut your losses short and let your profits run” is a good practice.
Statistics show that even successful traders lose on a high percentage of trades; thus, it is important that the winning trades be much larger than the losing trades so you make money overall.
It is also a good practice to be very selective in your trading. Look for markets that are trading below the cost of production without demand waning, or markets at all-time highs without a decrease in supply or an increase in demand.
These markets offer an increased probability of success.
3) Make a trading plan, then stick to it. View trading as a business venture (in fact, it is!!). Assuming you do your homework, have decided upon a trade, and establish your parameters for potential losses and gains, it is rare that you will need to alter your plan.
Stay cool, calm, and collected when implementing your plan. Leave your emotions at home. Let your plan be your discipline when trading.
Many traders continually refine their system until it stops working. Then, rather than going back to what they originally had, they venture into different areas of analysis. If the original system was making money, return to the original system or quit trading!
4) You can make money on both sides of the market—short and long.
In fact, money is often made more quickly on the short side of the market!
Most people focus on the long side of the market because they aren’t familiar with short selling.
5) Only use money you can afford to lose, and try to limit what you risk to the amount you can afford to lose. If you lose what you put in, quit trading.
Don’t throw good money after bad.
If you make money, take out the amount in excess of your initial deposit, and put it elsewhere for safe keeping.
As an example, if you are willing to risk $25,000, and your account grows to $50,000, take $25,000 out of your account.
Subsequently, if you lose the $25,000 that’s still in the account, quit trading.
6) Do not risk all of your trading capital on one trade. It’s a good idea to limit any loss to less than 5% of your total trading capital on one trade.
For example, if you have $40,000 in your account, you wouldn’t allow a loss of more than $2,000 (5% of $40,000) on any one trade, regardless of the margin requirements for that trade.
7) It’s not always necessary for you to be in the market. In fact, there are times when there aren’t good buying or selling opportunities. Some people are in the markets for the action, but being in the markets doesn’t guarantee the action will be profitable!