Nine Simple Trading Rules You Need to Know
If you want to cross the line between being an investor and being a trader, there are some things you should keep in mind. The rewards are higher, but there is much more at stake. You could lose hundreds, if not thousands of dollars in a day. I have been trading on MetaTrader for years. I have watched people gain and lose fortunes multiple times. Throughout those years, I have come up with essential truths to always keep in mind when trading:
1. Trading is both easy and difficult.
There is a misleading simplicity when it comes to trading. As long as you diversify, stick to your strategy, never go all in, and always secure your profits, you can stick around for very long.
However, trading becomes difficult because of the human aspect and our hidden biases. We tend to get greedy and blinded by small gains or by big losses. We tend to abandon our long-term strategies because of what we see in the short term, and this is where Rule Number 2 comes in…
2. Psychology is everything
Trading is not all about watching the charts and the news 24/7. There is a more significant, underrated aspect of trading: your mindset. How sure are you that you can stick to your strategy even though you just lost $4,000.00 yesterday?
Forex trading will expose you to the highest highs and the lowest lows. Throughout all these, you have to keep a stable mentality and not let impulsive decisions take control. You can have the best strategy in the world, but if you can’t learn to handle your emotional state, you won’t go far.
The better you are at controlling your emotional impulses, the more successful you will be in trading and finance in general.
3. Everything in moderation, including moderation
The money you are trading should never comprise all your assets. As they say, only trade as much as you are willing to lose. In the world of trading, you will come across individuals with stories of overnight riches because they went all-in. But that can only last for so long.
Try to resist the temptation of being greedy and remember that wealth is not built overnight. It requires consistency and time.
Of course, there will be exceptions when you have to break this rule, especially if you see huge opportunities present themselves in the market. However, the general rule still stands; practice moderation in most things, including trading.
4. Risk and reward
Trading is a high-risk, high-reward game. While you might get caught up in the rewards, it's also important to be grounded by the risks.
The fact that you can make $10,000.00 in two hours also means that you can lose $20,000.00 in the same two hours. If you are a beginner, you might want to stick to low-cost trading for now so that you also risk less money.
Once you begin gaining experience, you can then start moving to larger trade sizes or expanding into different asset classes.
5. Leverage is your best friend and your worst enemy
To leverage means to trade using borrowed money. It can be your best friend because you can earn more than you ordinarily could if you get a good trade. However, it can also be your worst enemy because if you are on the wrong end of a losing trade, you end up losing more than you might be capable of paying.
As a general rule, avoid leveraging yourself too hard (think 1:500 leverage), especially if you are a new trader. Most traders getting started should think between 1:30 and 1:100 to get the hang of it.
6. Understand what game you are playing
By now, we’ve already established that trading has risks. Forex trading, while playing by slightly different rules, is no exception. No matter what kind of trader you are, you should always understand and mentally prepare.
Before you even make your first trade, even if you are trading with low-cost brokers like Fusion, you have to accept that while you can make money, you can also lose money.
Too many think that trading is a get-rich-quick scheme, and all they must do is sign up on MetaTrader or any Australian forex broker, make a few clicks, and watch the money roll in. These are the kinds of people who end up losing money in their first week.
The truth is, trading may be quite lucrative for some, but it requires hours and hours of studying, just like if you’re training to be a pilot, you aren’t expected to fly the fastest fighter jet before getting some practice.
There are complicated analytical methods like technical analysis and fundamental analysis that professionals use to determine the value of a stock or a foreign currency. This way, they know exactly when to buy or when to sell.
If you really want to get into trading, be it stock trading or forex trading, you have to put in the work and start learning. Remember, real money is at stake here.
7. Be responsible for your own trading.
You might come across plenty of gurus and recommendations online, but at the end of the day, the only person gaining or losing money, is you?
Remember that whatever happens to your trades will only affect you. It will not affect anyone else's portfolio, so there is no use blaming others if you lose money.
Similar to #6, remember that different players in the
market play different games. Your friend Michael who introduced you to forex
might be a scalper taking short-term trades, whereas you might feel more comfortable as a
long-term trader, which doesn’t make one better than the other. You do need
to know what game YOU are playing, though.
If you take responsibility for your trades, it is more likely that you will treat your failures as learning experiences to do better next time. Failure is the best teacher, and that leads us right to Rule Number 8….
8. The best investment: Your own learning
Indeed, the best investment you can make
is in yourself. If you are beginning to dip your toes into the world of
finance, you might want to stay away from the markets (for now) and start
investing in books and learning
materials to give you an edge. Or practice
slowly with a demo forex account or a small live account to test.
The gains you can make from trading and investing may last you a week or a month, but the gains you make from investing in your own education will last you a lifetime.
The more knowledge and information you have when you trade, the more likely you will be making successful trades in the future.
9. Don't be crazy
Trading will give you plenty of temptations. You might think that you can buy low now and sell at a really high price tomorrow, so you want to pour in your life's savings all in one go.
Trading requires discipline, and there's no reason to go crazy all in one go because of speculation. There is much to learn in the world of trading.
You will be in here for a long time, so take it slow and enjoy the ride.