The trading rules I live by are:
1. Cut losses
Protecting your capital is your primary job as a trader. Making money comes second. Embrace trading losses. That means accepting a loss the moment the market invalidates your trade idea.
If you make the mistake of hoping for the market to turn around in your favor, you’ve already lost. The best way to embrace trading losses is to have a plan. Combine that with small bets and you’ll be light-years ahead of other Forex traders.
2. Ride Winners
Trading isn’t about having a win rate of 70% or 80%. It comes down to how much you make when you’re right and how much you lose when you’re wrong.
There are no two successful market players that are the same. Each of them have a unique style and differing opinions about the markets, technicals vs. fundamentals, and even risk management. However, they all share one incredibly important rule. They all require an asymmetrical risk to reward ratio. That’s a fancy way of saying that the rewards must vastly outweigh the risks. And the only way to achieve asymmetrical returns is to ride your winners.
3. Keep Bets Small
One of the best ways to keep emotions at bay while trading is to keep bets small. If you risk too much on any one trade, fear and greed will surely find you.
Speculate with less than 10% of your liquid net worth. Riskless than 1% of your speculative account on a trade. This tends to keep the fluctuations in the trading account small, relative to net worth. Notice that his risk per trade should be less than 1% of the account balance. This allows you to endure losing streaks without losing your account or your nerves.
However, I also define a percentage of my liquid net worth. This includes cash and other assets that can be readily turned into cash. As my rule states, one’s only allowed to speculate (using personal trading account) with less than 10% of liquid net worth.
It is crucial because it drives home the importance of trading with disposable income. In other words, risking money you don’t need for rent, utilities, groceries or other necessities.
1. Cut losses
Protecting your capital is your primary job as a trader. Making money comes second. Embrace trading losses. That means accepting a loss the moment the market invalidates your trade idea.
If you make the mistake of hoping for the market to turn around in your favor, you’ve already lost. The best way to embrace trading losses is to have a plan. Combine that with small bets and you’ll be light-years ahead of other Forex traders.
2. Ride Winners
Trading isn’t about having a win rate of 70% or 80%. It comes down to how much you make when you’re right and how much you lose when you’re wrong.
There are no two successful market players that are the same. Each of them have a unique style and differing opinions about the markets, technicals vs. fundamentals, and even risk management. However, they all share one incredibly important rule. They all require an asymmetrical risk to reward ratio. That’s a fancy way of saying that the rewards must vastly outweigh the risks. And the only way to achieve asymmetrical returns is to ride your winners.
3. Keep Bets Small
One of the best ways to keep emotions at bay while trading is to keep bets small. If you risk too much on any one trade, fear and greed will surely find you.
Speculate with less than 10% of your liquid net worth. Riskless than 1% of your speculative account on a trade. This tends to keep the fluctuations in the trading account small, relative to net worth. Notice that his risk per trade should be less than 1% of the account balance. This allows you to endure losing streaks without losing your account or your nerves.
However, I also define a percentage of my liquid net worth. This includes cash and other assets that can be readily turned into cash. As my rule states, one’s only allowed to speculate (using personal trading account) with less than 10% of liquid net worth.
It is crucial because it drives home the importance of trading with disposable income. In other words, risking money you don’t need for rent, utilities, groceries or other necessities.
JoeMoss
Added topic Trading plan.
How do you make a trading plan? Who helps you do it? What factors do you take into consideration
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