Top 10 Rules For Successful Trading

Top 10 Rules For Successful Trading
By
JEAN FOLGER

Updated February 02, 2022
Reviewed by
SOMER ANDERSON
Fact checked by
AMANDA JACKSON
Table of Contents
 1: Always Use a Trading Plan
 2: Treat Trading Like a Business
 3: Use Technology
 4: Protect Your Trading Capital
 5: Study the Markets
 6: Risk Only What You Can Afford
 7: Develop a Trading Methodology
 8: Always Use a Stop Loss
 9: Know When to Stop Trading
 10: Keep Trading in Perspective
 Conclusion
Anyone who wants to become a profitable stock trader need only

spend a few minutes online to find such phrases as "plan your trade;
trade your plan" and "keep your losses to a minimum." For new
traders, these tidbits can seem more like a distraction
than actionable advice. If you're new to trading, you probably just want
to know how to hurry up and make money.
Each of the rules below is important, but when they work together the
effects are strong. Keeping them in mind can greatly increase your
odds of succeeding in the markets.
KEY TAKEAWAYS
 Treat trading like a business, not a hobby or a job.

 Learn everything about the business.
 Set realistic expectations for your business.
Rule 1: Always Use a Trading Plan
A trading plan is a written set of rules that specifies a trader's entry,
exit, and money management criteria for every purchase.
With today's technology, it is easy to test a trading idea before risking

real money. Known as backtesting, this practice allows you to apply
your trading idea using historical data and determine if it is viable.
Once a plan has been developed and backtesting shows good results,
the plan can be used in real trading.

Sometimes your trading plan won't work. Bail out of it and start over.
The key here is to stick to the plan. Taking trades outside of the
trading plan, even if they turn out to be winners, is considered poor
strategy.
0 seconds of 2 minutes, 12 secondsVolume 75%

2:12
Jack Schwager: Investopedia Profile
Rule 2: Treat Trading Like a Business
To be successful, you must approach trading as a full- or part-time
business, not as a hobby or a job.
If it's approached as a hobby, there is no real commitment to learning.

If it's a job, it can be frustrating because there is no regular paycheck.
Trading is a business and incurs expenses, losses, taxes, uncertainty,

stress, and risk. As a trader, you are essentially a small business
owner and you must research and strategize to maximize your
business's potential.
Rule 3: Use Technology to Your Advantage

Trading is a competitive business. It's safe to assume that the person
sitting on the other side of a trade is taking full advantage of all of the
available technology.
Charting platforms give traders an infinite variety of ways to view and

analyze the markets. Backtesting an idea using historical data
prevents costly missteps. Getting market updates via smartphone
allows us to monitor trades anywhere. Technology that we take for
granted, like a high-speed internet connection, can greatly increase
trading performance.
Using technology to your advantage, and keeping current with new

products, can be fun and rewarding in trading.
Rule 4: Protect Your Trading Capital

Saving enough money to fund a trading account takes a great deal of
time and effort. It can be even more difficult if you have to do it twice.
It is important to note that protecting your trading capital is not

synonymous with never experiencing a losing trade. All traders have
losing trades. Protecting capital entails not taking unnecessary risks
and doing everything you can to preserve your trading business.
Rule 5: Become a Student of the Markets
Think of it as continuing education. Traders need to remain focused on
learning more each day. It is important to remember that
understanding the markets, and all of their intricacies, is an ongoing,
lifelong process.
Hard research allows traders to understand the facts, like what the
different economic reports mean. Focus and observation allow traders
to sharpen their instincts and learn the nuances.
World politics, news events, economic trends—even the weather—all

have an impact on the markets. The market environment is dynamic.
The more traders understand the past and current markets, the better
prepared they are to face the future.
Rule 6: Risk Only What You Can Afford to Lose

Before you start using real cash, make sure that all of the money in
that trading account is truly expendable. If it's not, the trader should
keep saving until it is.
Money in a trading account should not be allocated for the kids'

college tuition or paying the mortgage. Traders must never allow
themselves to think they are simply borrowing money from these other
important obligations.
Losing money is traumatic enough. It is even more so if it is capital

that should have never been risked in the first place.
Rule 7: Develop a Methodology Based on Facts

Taking the time to develop a sound trading methodology is worth the
effort. It may be tempting to believe in the "so easy it's like printing
money" trading scams that are prevalent on the internet. But facts, not
emotions or hope, should be the inspiration behind developing a
trading plan.
Traders who are not in a hurry to learn typically have an easier time
sifting through all of the information available on the internet. Consider
this: if you were to start a new career, more than likely you would need
to study at a college or university for at least a year or two before you
were qualified to even apply for a position in the new field. Learning
how to trade demands at least the same amount of time and fact-
driven research and study.
Rule 8: Always Use a Stop Loss

A stop loss is a predetermined amount of risk that a trader is willing to
accept with each trade. The stop loss can be a dollar amount or
percentage, but either way, it limits the trader's exposure during a
trade. Using a stop loss can take some of the stress out of trading
since we know that we will only lose X amount on any given trade.
Not having a stop loss is bad practice, even if it leads to a winning

trade. Exiting with a stop loss, and therefore having a losing trade, is
still good trading if it falls within the trading plan's rules.
The ideal is to exit all trades with a profit, but that is not realistic. Using
a protective stop loss helps ensure that losses and risks are limited.
Rule 9: Know When to Stop Trading

There are two reasons to stop trading: an ineffective trading plan, and
an ineffective trader.
An ineffective trading plan shows much greater losses than were

anticipated in historical testing. That happens. Markets may have
changed, or volatility may have lessened. For whatever reason, the
trading plan simply is not performing as expected.
Stay unemotional and businesslike. It's time to reevaluate the trading

plan and make a few changes or to start over with a new trading plan.
An unsuccessful trading plan is a problem that needs to be solved. It

is not necessarily the end of the trading business.
An ineffective trader is one who makes a trading plan but is unable to

follow it. External stress, poor habits, and lack of physical activity can
all contribute to this problem. A trader who is not in peak condition for
trading should consider taking a break. After any difficulties and
challenges have been dealt with, the trader can return to business.
Rule 10: Keep Trading in Perspective

Stay focused on the big picture when trading. A losing trade should
not surprise us; It's a part of trading. A winning trade is just one step
along the path to a profitable business. It is the cumulative profits that
make a difference.
Once a trader accepts wins and losses as part of the business,

emotions will have less of an effect on trading performance. That is
not to say that we cannot be excited about a particularly fruitful trade,
but we must keep in mind that a losing trade is never far off.
Setting realistic goals is an essential part of keeping trading in

perspective. Your business should earn a reasonable return in a
reasonable amount of time. If you expect to be a multi-millionaire by
Tuesday, you're setting yourself up for failure.
Conclusion
Understanding the importance of each of these trading rules, and how
they work together, can help a trader establish a viable trading
business. Trading is hard work, and traders who have the discipline
and patience to follow these rules can increase their odds of success
in a very competitive arena.

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Top 10 Rules For Successful Trading

Updated February 02, 2022

 1: Always Use a Trading Plan

 2: Treat Trading Like a Business

 4: Protect Your Trading Capital

 5: Study the Markets

 6: Risk Only What You Can Afford

 7: Develop a Trading Methodology

 8: Always Use a Stop Loss

 9: Know When to Stop Trading

 10: Keep Trading in Perspective

Anyone who wants to become a profitable stock trader need only

 Treat trading like a business, not a hobby or a job.

With today's technology, it is easy to test a trading idea before risking

0 seconds of 2 minutes, 12 secondsVolume 75%

If it's approached as a hobby, there is no real commitment to learning.

Trading is a business and incurs expenses, losses, taxes, uncertainty,

Rule 3: Use Technology to Your Advantage

Charting platforms give traders an infinite variety of ways to view and

Using technology to your advantage, and keeping current with new

Rule 4: Protect Your Trading Capital

It is important to note that protecting your trading capital is not

World politics, news events, economic trends—even the weather—all

Rule 6: Risk Only What You Can Afford to Lose

Money in a trading account should not be allocated for the kids'

Losing money is traumatic enough. It is even more so if it is capital

Rule 7: Develop a Methodology Based on Facts

Rule 8: Always Use a Stop Loss

Not having a stop loss is bad practice, even if it leads to a winning

Rule 9: Know When to Stop Trading

An ineffective trading plan shows much greater losses than were

Stay unemotional and businesslike. It's time to reevaluate the trading

An unsuccessful trading plan is a problem that needs to be solved. It

An ineffective trader is one who makes a trading plan but is unable to

Rule 10: Keep Trading in Perspective

Once a trader accepts wins and losses as part of the business,

Setting realistic goals is an essential part of keeping trading in

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