Investing in stocks can build wealth, but it’s easy to start building debt if you don’t know what you’re doing. If investing is easy, then everyone would do it. However, trading is an art that requires study and understanding of the markets to be profitable(view page for more info). Here are ten rules that will help turn you into a better trader:
1. Decide on your financial goals
Know what your primary investment goal is so you can maximize your potential returns while minimizing risk exposure. Your goals should also include contingencies for when market conditions change, or unexpected events happen (like losing your job).
2. You get out what you put in
Don’t expect to become profitable within a month of trading. It takes time and dedication to build the habits, intuition, and market knowledge that professional traders have.
3. It would help if you had an edge
Trading is more than just entering the market on one side and exiting at your targeted price. Professionals look for small margins in which they get paid to swing trade or day trade because it makes them profitable over time.
They also know how to protect their capital so they can stay in the game when others give up or get stopped out prematurely by market noise (like news events).
4. Be patient and follow your rules
Successful traders don’t enter every trade that looks good; instead, they wait for setups that fit into their schedule and risk parameters while trading off a list of rules they’ve developed.
They follow their rules and don’t try to change them every time the market changes conditions, or someone gets in their head about what might happen next.
5. Know when to hold and when to fold
Professionals know how much to risk on every trade so they can stay in the game as long as possible to maximize their gains while minimizing losses by knowing when it’s best to exit a position, even if it’s not at a loss yet.
Professional traders also learn from losing trades to better judge which trades are worth taking and which ones aren’t for them.
6. Use stop losses
Stop-losses help protects your capital during unplanned events, like a market crash, which is why you should always use them.
7. Please keep it simple
Professional traders keep things as simple as possible to avoid over-trading and making decisions based on their feelings or fears instead of sticking to pre-determined plans.
They also make complicated things easy by knowing how to read charts and looking for key trends that will help them identify the best times to buy and sell different securities.
8. Diversify your portfolio
A diversified portfolio reduces risk exposure allowing you to stay in the game longer, giving you more chances at winning trades while giving less opportunity for one trade or event from moving against you too quickly.
Please pay attention to what happens when everything goes well to know what you should expect when everything goes wrong.
9. Be patient with small wins
Profitable trading takes time, and building your confidence in the markets while growing a sustainable income takes even longer if you want to do it right. You don’t need to be a millionaire overnight,
so keep your risk manageable and only trade securities that have enough liquidity for your needs while being patient with smaller gains while waiting for more significant returns down the road.
10. Know when to break the rules
Even professionals break their own rules from time to time because they understand that sometimes they’re wrong or missing something important, like breaking a rule by selling too soon during an uptrend because of fear that they’ve missed opportunities or that security might go even higher after a strong rally.
Pros know when to break the rules and manage their risk exposure while learning from their mistakes so they can do their best work in future trades.