Over my past few years of Forex trading, and reading books written by various market wizards, I’ve found certain principles to be true. Understanding and using these basic principles provides an anchorage of sanity when trading in an insane market. I always pull out these 7 basic trading principles and review them, whenever I am stress or getting “whipped-saw” in the market.
1) Nobody knows where the market is going
It has really taken me quite some time to realize that no one knows where the market is going.
I have been to seminars in which the presenter made it seem as if he or she had some holy grail in trading to predict where the markets were going. Either they were insane or they were just plain good actors.
2) The Market Experts aren’t David Copperfield
The market experts aren’t magician. Some of these experts or gurus that try to predict the markets actually profited from it. The reasons for them profiting in the market is not because they predicted the market correctly. They make money because they traded the market correctly.
3) Don’t Try to Predict the Future
I used to think that there were gurus and experts out there who knew what was going to happen in the markets. I thought that these gurus and experts were extremely successful because they had the magic formula on how to predict the future of the markets. Of course, the question is that if they were such geniuses, and if they knew where the market was going, why were they still conducting trading courses, posting newsletters… etc? Why weren’t they driving to the seminars on their Lamborghinis? Why aren’t they the richest man in the country?
4) Discipline, Discipline, and more Discipline
In the world of trading without fixed rules and regulations on how you open your trade, close your position….etc. Discipline, Discipline, and more Discipline is the real rules of trading-without it; it will be just a question of time, before we are doomed!
This is not an easy behavioral trait to master, I know but nevertheless an essential element and a key to any successful trading.
5) Aligned yourself with the Market
We make money trading when we are in harmony with the market. We are long when the market is going up, and short (or out of) the market when it is going down. If we bring an opinion with us while trading, we will end up fighting the market. We keep trying to go long as the market is declining, or we keep shorting a market that it is in a bull phase.
6) Read the market, manages your emotions.
To remove your personal biases and let the market tell you what to do is to give up control, to give up the notion that you are actually in charge of how much money you make. For profitable trading, you need to move into the mental state of letting the market determine the profits, not you. It won’t be whether you predict the market correctly that determines the profits, but whether your strategy is in a profitable mode or drawdown mode as determined by the market.
So, let the market tell you what to do based on your strategy. Let it get you long and put you short. Let the market determine how much money you are going to make. Trade your strategy and let the market do the rest. And know that the market gives money and the market takes away money. Your goal should be to develop a strategy that gives you more money than it takes away.
7) Accept losses as a cost of doing business
Most successful traders will tell you that the most difficult thing about trading is accepting the losing trade. We all have the desire to be right, to be correct all the time. For novice traders, the losing trade means that something is not working and that you have somehow made a mistake. For experienced traders, losses are just a cost of doing business.
Some of the best traders in the world lose money on more than half of their trades. If you look at the performance results of the best traders and money managers, you will see that they all have a large percentage of losing trades. If you trade, I guarantee you that you will have losing trades. Learn to love losing trades. They should be your friend because you will be spending a lot of time with them.