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A trading strategy can be straightforward or complex; it depends on the trader's psychology or game plan. But if you want to build a successful trading strategy, the most important thing to do is to build it on a basis of objective facts and analysis, and then to follow it sincerely.
Rule 1: Always trade with a plan
Trading plans outline a trader's entrance, exit, and money management criteria for each buy.
Technology makes it easy to test a trading concept before investing. Backtesting lets you test your trading idea using past data. After backtesting, a trading plan can be used.
Follow the strategy. Even winning deals outside the trading plan is a bad strategy.
Rule 2: Consider trading like a business
Trading is a business, not a hobby or profession. Hobbyists don't commit to studying. It's frustrating if it's a job because there's no regular paycheck.
Trading involves losses, taxes, uncertainty, stress, and risk. You must research and strategize to optimize your business's potential as a trader.
Rule 3: Take advantage of technology
Competitive trading. The other side of a deal is likely using all available technology.
Charting tools provide traders endless market analysis options. Historical data backtesting prevents costly mistakes. Smartphone updates let us track trades anywhere. High-speed internet can boost trading performance. Technology and new products may make trading interesting and profitable.
Rule 4: Protect your trading funds
Saving up enough money to fund a trading account takes a lot of time and work. If you have to do it twice, it can be even harder.
It's important to remember that keeping your trading capital safe doesn't mean you'll never lose money on a trade. All traders have losing trades. To protect your capital, you should avoid taking risks that aren't necessary and do everything you can to keep your trading business going.
Rule 5: Learn how the markets work
Continuing education. Traders must keep learning daily. Understanding markets and their complexities is a lifelong effort. Hard study helps traders understand the meaning of economic reports. Focus and observation help traders develop instincts and discover nuances.
Politics, news, economics, and even the weather affect markets. Markets change. Understanding past and present markets helps traders prepare for the future.
Rule 6: Bet What You Can Afford to Lose
Make sure that all of the money in your trading account is really spendable before you start using real money. If it isn't, the trader should keep saving until it is.
You shouldn't use money in a trading account to pay for college for your kids or the mortgage. Traders should never think that they are just borrowing money from these other important bills. It's bad enough to lose money. Even more so if it's money that shouldn't have been put at risk to begin with.
Rule 7: Develop a method based on facts
Creating a solid trading strategy is worth the work. The Internet is "so easy it's like printing money." Trading frauds are seductive. However, a trading plan should be based on facts, not hope.
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Traders who don't rush to learn can better sort through the internet's content. Consider this: if you were to start a new career, you would probably need to study at a college or university for a year or two before applying for a job. Trading takes at least as much time and fact-based investigation.
Rule 8: Always Use a Stop Loss
A trader's stop loss is the risk they're willing to take. The stop loss, whether money or percentage, restricts the trader's risk. Since a stop loss limits our losses, it can reduce trading tension.
Even if you win, trading without a stop loss is bad. If the trading plan allows it, exiting with a stop loss and losing is smart trading.
Exiting all trades with a profit is ideal, but unrealistic. Stop losses limit losses and hazards.
Rule 9: Know When to Stop Trading
An unsuccessful trader or trading plan are two reasons to discontinue trading.
Ineffective trading plans lose more than expected in historical testing. Happens. Market volatility may have decreased. The trading plan is underperforming.
Be impartial. Rethink the trading plan or start over.
Solve a failed trading scheme. Trading may continue.
An incompetent trader creates a trading plan but fails to follow it. Stress, bad habits, and inactivity can cause this. Take a break if you're not trading well. After resolving issues, the trader can resume operations.
Rule 10: Observe Trading
Trading requires long-term thinking. Trading involves losses. Profitable businesses start with successful trades. Cumulative earnings matter.
Emotions won't affect trading performance if a trader accepts wins and losses. We can celebrate a successful deal, but we must remember that a losing trade is always possible.
Trading requires realistic goals. Your business should make a decent profit quickly. Expecting to be a multi-millionaire by Tuesday is unrealistic.
A trader's work is not done here; to make a strategy successful also needs to be looked at often, significantly if the market changes or the trader's goals change.
