Becoming a consistently profitable trader starts with discipline. It is important to always remember that trading is a long-term game. Your strategy and focus should be on methodologies that consistently work over time with the understanding that nothing works 100% of the time. The key is to put yourself in high percentage situations with good risk/reward and not stray away from your strategy to compensate for the one time a stock does something unexpected.
At every successful trader’s core, lies a set of rules, that no matter what, are obeyed. Here are 10 rules that True Trading Group’s Award-Winning Head Trader, Michael Edward, has compiled.
- Follow Your Plan, No Matter What
Have a plan and stick to it. Set rules, loss limits, and profit goals for yourself and don’t deviate from them. It takes great discipline to be a successful trader and this is a good place to start. No matter what happens, follow your rules and stick to your plan. If you passed on a certain trade because there was a flaw in the setup and it turned out to be a monster winner, forget about it. Pass on that same flawed setup again next time. Because 9 times out of 10 that flawed setup will fail. As you grow and develop as a trader you can begin altering your rules and plan.
- Never Stop Learning
The stock market can never be truly mastered by anyone. Even the most successful and experienced traders continue learning and studying the markets. You are no different. Continue to educate yourself. The market teaches us lessons each and every day.
- Focus on One Strategy at a Time
Don’t jump from day trading to long-term swing trading to scalping. Focus on learning and excelling at one strategy at a time. Once you are comfortable and successful at one strategy you can begin exploring others. Master one strategy rather than being average at several.
- Do Not Revenge Trade
When a hefty loss is incurred, take a break and clear your head. Do not revenge trade and feel like you have to get the money back. This is a crucial mistake that will implode your brokerage account very quickly. The mind plays games after suffering a big loss and you won’t be thinking clearly.
- Pay Attention to Volume Spikes
Volume spikes are key when confirming a breakout. Don’t be fooled or sucked into choppy trading action with low volume. Low volume breakouts tend to fail. And just like how a volume spike could confirm a breakout move, it could also signal the end of one. Heavy volume could provide an exit for both buyers and sellers resulting in choppy sideways action again.
- Listen to the Charts
Charts are the market’s way of talking to us. They display what has happened, what is happening, and often give clues as to what is yet to come. No matter how much you hope and pray you will never be able to effect or sway the market one way or another. Read the charts, analyze them, and listen to what they are telling you. Don’t listen to other people’s opinions or hope something happens. Listen to what the charts are telling you.
- Preserve Your Mental Capital
Trading is more a mental battle within than anything else. Sure you need financial capital in your brokerage account to trade, but mental capital is what you need in your mind to trade successfully. Always trade with a clear head. Think confidently, calmly, and focused at all times. And remember no matter what happens today, the stock market will always be open tomorrow.
- Talk Yourself Out of a Bad Trade
Naturally, traders look for good trades. But sometimes our cognitive bias can lead us in the wrong direction. If you are looking for a specific chart setup, it is easy to think you see one that might not really be there. That is because we tend to find what we are looking for. However, conversely, if you are looking for a bad setup, and cannot find one, then the setup you are looking at must be a darn good one.
- Nothing is Impossible, Never Say Never
Don’t ever say, “Well, how much lower can it really go?” The answer is always, “much lower.” In 2007-2008, when Bear Sterns dropped from $150 a share to $100 a share, investors asked “how much lower could it really go?” Then, when Bear Sterns dropped from $100 a share to $75 a share, investors again asked, “Well, how much lower could it really go now?” The answer ladies and gentlemen, was $0.00. Listen to the charts.
- Become a Better Than Average Trader
Traders aim to gain two things and one is tied to the other. Income and Financial Freedom. Don’t settle for average. Don’t just be happy with decent. Strive to become the best trader you can be. Focus on earning the extra income to reach your goal of financial freedom. Don’t allow yourself to plateau. Stay motivated and set high expectations but realistic and attainable goals. As you reach your goals, take things to the next level. Ask for help. Never stop learning. And one day you can become the next trader to turn $10,000 into $1,000,000.