Rule 1: Always Use a Trading Plan
A trading plan is a set of rules that specifies a trader's entry, exit, and money management criteria for every purchase. Use technology to test a trading idea before risking real money. This process is known as backtesting. It allows you to apply your trading idea using historical data and determine if it's viable. The plan can be used in real trading after it's been developed and backtesting has shown good results.
The key here is to stick to the plan. Taking trades outside the trading plan deviates from your predicted performance and nullifies the value of your plan even if they turn out to be winners.
Rule 2: Treat Trading Like a Business
You must approach trading as a full or part-time business, not as a hobby or a job, if you're going to be successful. There's no real commitment to learning if it's approached as a hobby. It can be frustrating because there's no regular paycheck if it's a job.
Trading as a business allows you to clearly identify all your expenses and losses. This helps you reduce uncertainty, risk, stress, and even taxes. Too often traders imagine that they're in the business of prediction. This point of view often generates unproductive effort. Traders who realize they're in the business of risk management begin to focus their efforts more productively.
Rule 3: Use Technology to Your Advantage
Trading is a competitive business so it's safe to assume that the person on the other side of a trade is taking full advantage of all available technology.
Charting platforms give traders infinite ways to view and analyze markets. Backtesting an idea using historical data prevents costly missteps. Getting market updates via your smartphone allows you to monitor trades anywhere. A high-speed internet connection can increase trading performance. Using technology to your advantage and keeping current with new products can be fun and rewarding.
