Staying In the Trading Game – My Trading Rules
Based on experience, here are my thoughts on what makes a successful trader.
I have been teaching beginners to trade for many years, and over all those years I have found that things do not change very much, with one exception – the technology improves. When I started out, never in my wildest dreams could I envisage trading from a mobile phone or an iPad. However, it can be confusing to the newcomer. I’m sure if I was starting my trading adventure right now I would be faced with mind boggling choices and really wouldn’t have a clue where to start. When I started all those years ago, there were very few places you could go to get a solid foundation in the basics of trading.
Now, you are spoilt for choice. There are literally hundreds of websites, dozens of trading companies and brokers who have recently set up, some from the U.K. and many from overseas, charging the unwary high prices, selling courses covering a wide range of subjects and systems. It’s a minefield for the inexperienced. Should any beginner buy one of these courses, then their grounding is usually set for the rest of their trading career, no matter how short that might be. There will be many opportunities for new traders, and, my one suggestion, before you spend your hard earned cash, is to spend some time on the internet and research the individuals behind the offers, before committing yourself. It is time which can pay real dividends and save you anguish and frustration.
Personally, I learnt the basics, I was self taught in the beginning, as there was little information when I started, and I still trade and teach the same way today. I like trends, support and resistance, chart patterns and volume - the basics. I do not use or believe in Fibonacci, Gann waves, Elliot waves, candlesticks, pivot points, pitchforks or the dozens of others things that exist to impress, confuse and part you from your cash. They just don’t work (in my opinion); if you press a different timeframe they all change and nobody has convinced me which timeframe they work in; is it daily, one hour, or three minutes forty seven seconds? However, I do always try to learn new things and one of the things that really matters, is the improvements in trading software, and the things that it can do to make my trading life easier.
I like software which I can download to my computer (i.e. not web based), which can be adjusted to suit me, and my advice to beginners is to learn your platform backwards to reap and benefit from the rewards. Firstly, I don’t like software or brokers which intercept your trades with a dealing desk, I like my trades to go live when I press the button and to close when I press the button; no interference, simple. I also like my software to be adjustable, so I can change the parameters of indicators and visualisation on the charts. Another thing I look for is seeing my live trades and ‘trading off the charts’, along with stops, limit orders, alerts, and being able to watch the charts in real time, even on a practice account.
Also, I like my software to have sophisticated extras, such as facilities to add such things as Heiken Ashi charts, the best trend indicator there is, and OCO’s, trailing stops, automated trading and backtesting facilities. It also helps if they have a demo account which does not run out after two weeks. That is the basic requirements for my main trading software: incidentally, these are not things you will get on your iPhone or iPad, yet.
The last time I wrote an article for Trade2win was nearly a decade ago, and during that time my enthusiasm for trading has not diminished, but I have gained an immense amount of experience and pleasure from teaching and introducing hundreds of beginners to the world of trading. The greatest pleasure I get, is speaking to, and receiving emails from, my ex students who are now making a full time income from this challenging venture. I rarely hear from those students who have given up. The latter being the vast majority and, as this will probably be the last article I write for another decade, I hope you don’t mind if I give you my opinion as to what makes a successful trader. This also gives me the chance to tell you about some of the people who have attended my training courses.
I think it’s best to start by giving you one simple rule that separates the winners from the losers. Can it all boil down to one simple thing? Yes it can! The winners have a set of rules that they discipline themselves to stick to, and rigidly adhere to. The losers are the vast majority of the others that think they know best - but don’t. They do their own thing and lose big time.
You see, I joined the R.A.F at the age of fifteen and was taught discipline and the importance of sticking to the rules. I survived 18 years; enjoyed travelling the world to Hong Kong, Cyprus, Singapore, Germany and Northern Ireland, helping to keep the Queen’s aeroplanes in the air. So, from an early age, I knew what sticking to the rules was all about. Over the years I have developed a set of rules for trading, all 42 of them, and I think that those taking the time to read this article might benefit from them. You will need to know what every rule means and fully understand them. Thinking you can be a successful trader and ignoring any of them will lead you into a part time job stacking shelves in Tesco’s.
There are only two types of people that want to learn to trade: those that want to know everything about trading and are prepared to spend the time to learn about the markets and those who just want to make money. No matter which type you are, the same basic rules apply; neither type can succeed without them. So, if you are keen to be a success in trading, then you had better know and stick to all 42 rules. I suggest that you get yourself a plume and paper and jot these down. These rules are not in any particular order, as they all count with equal importance. So here we go:-
RULE 1 – Keep losses small. I am more concerned about protecting my capital and ensuring any losses are small, than I am about making money. I’m going to have losses, but I control them and let the winners take care of themselves. The hardest job of any trader is to get out of a losing trade, believe it.
RULE 2 - Do not forget Rule 1.
RULE 3 - Learn the basics; fundamentals, charts and indicators etc.
RULE 4 - Position size every bet in relation to your bank.
RULE 5 - Always use stops, not as a trading tool, but as a disaster avoidance technique.
RULE 6 - Give your trade room to breathe, don’t place stops too close, most beginners lose because of this. Remember, the wider the stop the smaller the trade size. This is also dependent on the timeframe you are in, simple tip if you are trading on the 5 min. chart. Check the 10 min one as well. Stops should be placed visually in my opinion.
RULE 7 - Don’t be greedy, appreciate small and consistent gains. Once you’re in a profitable position, consider moving your stops - especially to break even - and then you are using the broker’s money. If your software has the facility, then trailing stops could the answer. Many of my students have a minimum daily target of just 10 pips/pts.
RULE 8 - Accept that the markets are totally random and unpredictable and practice makes perfect - give yourself time before trading ‘live’.
RULE 9 - Control REVENGE, after a loser take a break, always. Never strike right back, never, and never double up to recover your losses.
RULE 10 - Never HOPE that you will win, trade only when you see a good trading opportunity, and remember live trading is different mentally from demo trading.
RULE 11 - Keep accurate records of each and every trade, winners and losers, even on a demo account, you must learn the correct habits.
RULE 12 - Eliminate fear, fear of failure and fear of trading. If you suffer from fear then trading is not for you.
RULE 13 - You do not have to trade, if there are no good trading opportunities then do not trade, there is always tomorrow. You can always spend the time practicing new techniques on a demo account.
RULE 14 - Reward yourself, I’ve been teaching trading for over a decade, I would love a pound for every beginner that has ploughed money into a trading account and then just traded it until the money completely vanished. Most traders have some good wins, my advice after you have had a great trade or a profitable week is to take some money out and spend it! That’s what trading is for. We all know the compounding effect of mathematics and we can all dream. But my advice after a good win - say £500 - is to take out £100 and spend it. You will feel great about your trading, I promise you.