7 Golden Rules of Successful Trading Every Investor Must Know
The stock market can be a very rewarding way to make money, but only if you have the proper mindset, commitment, and education when you make that investment. Many traders begin trading with expectations of being wealthy overnight and suffer fines because they do not follow the basic rules.
To help you with your foundation, here are the 7 golden rules of successful trading that every investor must know.
Always Trade With a Plan
Entering the market without a plan, is like sailing without a rudder. A trading plan describes your entry, exit, stop-loss, and target before you enter a trade.
Why it's important:
-Forces you to maintain discipline.
-Reduces emotional trading decisions.
– You can track your performance and improve over time.
Pro Tip: Write down your trading rules and stick to them strictly — even if the “hot tip” looks tempting.
Risk Only What You Can Afford to Lose
The first rule of trading: protect your capital. Always remember not to risk money that you need for a basic expense, such as rent or EMI, or for family obligations.
Why it is important:
Trading involves uncertainty; even a good trading strategy will have losing days.
When you are too overextended, it can be stressful for your finances.
Tip: Always risk 1-2% of your total capital per trade. By having smaller risk per trade, if it does not work in your favour, you can take the loss and move on with minimal damage.
Use Stop-Loss Every Time
The quickest route to eliminate your trading account is to ignore stop-loss. A stop-loss is your safety net; it automatically exits your trade if the price goes against you.
Why this is important:
Stops small losses from becoming big Adds discipline to your trading system Pro Tip: Select your stop-loss point before you enter the trade. Stick to the agreed stop-loss and do not move it to a larger loss, out of fear.
Control Your Emotions
Fear and greed are the two largest enemies of traders. Unsure if your trade is going wrong, it is not unusual for beginners to panic. They may also feel overconfident and act greedy when trades are going in their favor. Both of these emotions lead to poor decision-making.
Why this is important:
Fear results in exiting your position too early. Greed results in holding your position too long or overtrading. Pro Tip: Stick to your plan rather than your emotions. You know you are stressed and so it is best to step away from the screen. Remember- patience is also a trading strategy.