One should have clear cut trading rules before he or she starts trading in equity, commodity or currency markets. Profits are earned only when your rules are clear and you believe in them and act on the basis of them. If you do, you are sure to make profits.
I would put these 13 rules as very important to make profits in trading.
- Before you implement your system of trading with actual money, you need to first do a dry run of your system of trading. Look at the computer trading terminal and try and trade as if you are actually trading. The difference would be that you are going to trade on paper and not with actual money. First our intention should be to make profits on paper and then we go for actual trading with live money. We do not wish to repent later that we should not have taken a particular trade or not. First experiment in a dummy environment and get habituated to take decisions in a fast moving market.
- Believe in your system 100%. Remember that when you start trading, that time you should not be thinking about if to take the trade or not, that is you should be never confused as to whether to take the next trade or not. You need to have full faith in your system of trading and you need to take all trades come what may.
- Have patience in a sideways market. Remember that when markets are sideways, you need to have full patience. Your stop losses are going to be triggered but you will have to take the trades as per your system.
- Losses are part of trading. Go on following your system. Remember that if you trade, you will make losses as well as profits so you should not be worried of losses. The only thing is that as per your system of trading, the loss should be less than profits. In long run, profits would be more and hence you will make net profit in trading.
- Greed has to be removed. Remember that in the long run it should be realistic returns. People enter trading expecting miracles and fortunes and hence become greedy.
- Wrong entry and a wrong exit is a strict no. You cannot be just trading for the sake of trading. The system of your trading should generate a buy or sell signal and then only you can trade. It should not be at your whims and fancies.
- In case of panic or excitement, distract yourself. Remember that when trading, you will become panicky when market suddenly goes against you or there is a big news in the market. But in such times you need to remain cool and calm and not panic which will only give your losses.
- Do not mix two systems together. You are trading intraday and when losses start to come, that time rather than cutting your loss, you start looking at the daily trend. You are trading on basis of say macd and suddenly you start trading on basis of rsi because you saw that in last one month rsi as an indicator gave you better returns. Do not try and jump from one system to other as you will only make losses.
- Trades should be updated in an excel sheet or a trading notebook. Remember that all trades should be daily written in a notebook and analysed properly as to reasons of taking those trades. You also need to mention whether you traded in a proper way as per your system or not. Any wrong trades taken should not happen again.
- Take responsibility of your trades. You cannot blame anyone else for your trading. People have a habit of blaming CNBC analysts, Bloomberg Analysts or Newspapers for the reasons of their mistakes. Well, remember it is your own money and you are telling a lie to your self which is wrong. Start taking responsibility for your trades and you will find that your trading will improve.
- Mental relaxation and physical fitness improves trading. Do Meditation and deep breathing while trading or later in the evening as it will help you to relax while trading. Remember that trading is one of the toughest jobs in the world. People realize the toughness of trading only when they lose majority of their money. (More than 80% people lose money initially)
- Do not enter the trade in between your system. Let us say your system said that buy at level x, then you see that the market is going as per the system but since you did not take the initial trade, now you want to take the trade, it is wrong.
- Volumes have to be under discipline. Volume should not be increased at your whims and fancy. It has been seen that traders become more confident when they get profit and they increase volume. When they get a loss, they decrease volume. Volume should remain constant.
In conclusion, start following these rules and your trading will improve.