Traders come in all different shapes and sizes. One could have red hair, blue, or purple. Each trader has a different personality, style, and strengths and weaknesses that make them truly unique and suited to one type of trading or another.
But, no matter what kind of trader you are, there’s one thing for certain: All great traders share some common attributes and behaviours.
And we call these, The 4 Golden Rules of Great Traders.
So, what’s the plan, Stan?
Fear and greed: these two emotions are the reasons all traders need a plan, and why most traders don’t stick to one.
A trading plan means asking yourself 3 key questions:
- Know why you’re placing a trade. Why now?
- Have a maximum risk for every trade. Is this figure suitable for current market conditions and your risk appetite?
- Set take profit for every trade before you enter. Realistically, how many pips can you hope to earn within a reasonable timeframe?
Following these steps is your only hope of having success as a trader.
When you’re losing money, markets can terrify you out of your fixed risk plan. And when you’re in profit on a trade, you can find your greedy little self hanging in for a few extra pips more than what you planned for. But giving in to these impulses means you’ll never be sure about anything enough to optimise your plan.
Real “trading” isn’t your current trade. It’s your balance at the end of the month, quarter, or year. And it won’t matter how great your plan is – if you don’t stick to it, it’s no plan at all.
Markets have moods
In their zen state, markets can be seemingly patient streams of global consciousness that appear to follow a natural order.
But just like nature, markets can exhibit wild, untamed spells that can wreak havoc, before settling back down into a more peaceful state.
These spells are known as periods of high volatility and can wipe out your account in hours, minutes, or even seconds if you’re not careful.
They can also significantly increase earning potential if you’re on the right side of the swing.
Data releases, such as unemployment figures out of the US, or huge one-off events, such as the result of the Brexit referendum, can cause markets to suddenly and sharply rise or fall, before either correcting or settling into a new trend.
You need to be prepared for these moves by making sure you have enough margin to survive the wild swings, and set your take profit and stop losses a little further away than you might normally.
Luckily, the timing of these relatively large movements can often be predicted, with news announcements and election dates widely known a long time in advance.
Don’t chase the markets
You think the rate of a given asset will go up in the near term.
You place a buy trade.
As soon as you place your buy trade, markets suddenly start dipping.
Reactively, you close your long position and open a sell position instead, expecting the markets to continue to fall.
Suddenly, markets correct themselves and begin climbing back up.
Now you’re two trades down because you chased the markets.
It’s simple, don’t do it.
Don’t overuse technical indicators
Technical indicators are an important part of the most successful trading strategies. They can give you valuable clues on when to enter and exit the markets.
However, they should rarely be relied upon as the only factor in your decision making. Relying solely on technical indicators should be reserved for very short-term strategies.
If you want more confidence in your decisions, try to form an opinion on how current events are going to impact the markets you’re trading. Then, wait for technical indicators to either validate your opinion or make you question it.
If the technicals are confirming your view, great. Now you have two reference points and can take a more assured decision.
If the technicals are showing signs counter to your view, take a step back. Come back at a later time when your opinion has changed, or the technicals have changed. Don’t rush, and don’t let one force your view of the other.
By following these golden rules and applying them to your everyday trading strat