It is often said, to be successful with trading you need to limit your losses. It is impossible to think of not losing money in trading, there will always be operations that will end with a loss, but what is more important is to limit the “damages”: the 5 basic rules of trading are always valid.
Unfortunately, novice traders have no understanding and experience of how the market and trading work and are overwhelmed by the psychological aspects, making mistakes that can cost dearly. As in almost all areas of life, even for trading there are basic rules that all traders should follow. Read carefully if you take care of your money.
Discipline is the key to success in trading
A common mistake for novice traders is that they do not follow the planned stop losses exactly, perhaps simply because they do not have the necessary readiness to exit the position, which usually leads to money losses that can also be significant.
At other times, the reasons why the rules are not respected can be psychological or character. The trader must have an iron discipline and a strong resistance to stress, since it is not easy to keep a cool head and the necessary detachment in critical situations.
Whenever you’re tempted to disregard a rule, stop, it’s the best choice.
It takes just a few losses to reset the trading account or lose the money that has been earned with so much effort and effort.
Trade at the right time
The markets are open 24 hours a day, but this does not mean that every moment is ideal for trading. Opening and closing phases of the market are by far the most difficult and dangerous of the whole day.
The trader must therefore absolutely avoid trading during the first and last trading hours.
Intraday trading and scalping require considerable experience and deep knowledge of the financial markets, which people usually do not have either for lack of time or for studying the markets themselves, but operating at those times requires a deep knowledge of the markets and related mechanisms. The risk is that of “falling into the traps” in which thousands of aspiring traders end up every day.
Trust yourself, but not too much
If a trader actually manages to have a positive balance between the small gains made and the losses achieved, he acquires confidence in the strategy used. But there is a risk of a sense of omnipotence, for which it will tend in most cases to gradually increase the capital invested in each single operation and bringing it to situations where it should not but be.
At that point, even if the losses begin to exceed the winnings, his confidence is not greatly affected, and the trades can increase dramatically to make up for the losses. Due to the increased and unjustified exposure to risk, losses tend to increase if the trader does not have the intelligence to stop and make a critical analysis of his work.
The importance of money management
One of the main mistakes of novice traders is that they don’t have accurate money management. The basic rule is to never invest more than 2% of your capital in a single transaction. In this way in that operation you do not risk your capital and you have to lose at least 50 trades in a row to empty your account. If after a certain number of operations the losses are growing, it means that something is wrong with your strategy and you must make the necessary countermeasures.
Knowledge of the markets makes the difference
To be a successful trader, you need to operate on a small number of markets, specializing in them and monitoring them. On these it is necessary to try to know as much as possible, analyzing historical series, correlations with other products and / or markets, and keep up to date on the news. You then need to choose a few tools and strategies to work with and learn how to use them well.
A good trader must know which best tool and market to invest in, everything else could lead to a loss of money and energy.
It is better to be expert in one asset than to practice all possible trades with 50 different markets. It is better to use and know two indicators well than to use ten but without dominating them.