3 Simple Rules Traders Always Forget To Use
At Coinrule, we engage with hundreds of traders daily. We provide them useful resources to step up their skills, answer their questions and gather their feedback. The most commonly asked question is, “what the best trading strategy to make money is?” There may be countless profitable trading strategies you can run, but none of them will be successful without keeping in mind these simple rules traders always forget to apply to their trading systems.
Having the correct set of trading rules should be an essential part of your trading plans. The proper rules separate the smart traders from the others and set them up for success.
A set of rules acts as a guide as you navigate the markets daily and find a setup fitting your trading goals. Learning more about trading, you will come across many different trading strategies. However, it’s important to note that one system can be profitable for a trader but not for another.
A sound trading system will certainly turn in losses without following these rules traders always forget. On the other hand, even a bad trading system will generate much better returns sticking with these rules.
Trend Is Your Friend
“Trend is your friend” is an old motto everyone knows in Wall Street. As a trend trader, you should not have a fixed view of the market’s direction. To be successful in trend trading, traders need to have an accurate system for determining and following trends. Even so, it’s critical to be alert and flexible since trends change rapidly.
Being aware of market reversals risks should be a priority, and you should also learn what you should mitigate. Traders must always stay on the side of momentum as this is where the money is. There are numerous trend-following tools that traders can use, and the moving averages are among the most popular. Since riding the trend is difficult, a trader has to exercise a lot of patience.
However, with great confidence in the trading system, a trend-trader must have solid discipline. To be long-term successful, it requires paying attention to major trend swings to adjust all positions accordingly. Some trading systems work well during uptrends, others in downtrends.
If that seems relatively easy to implement, the tricky part is identifying relevant trends, forgetting about minor ones that only result in trying to overfit the trading systems and thus, losing track of the original plan. The choice of the time frame to look at is the key.
Traders must keep in mind that sometimes the last part of a trend accelerates as those with the wrong positions are about to cut their losses. Thus, be consistent with the timeframe in which you should follow the trend.
Trend trading offers plenty of opportunities for entering and exiting trades. Moreover, it also allows you to play all sides of the market. Therefore, developing the strategies to be successful will need you to remember the rules traders always forget and apply them. Ultimately you will reap the benefits.
Position Sizing & Risk Management
Position sizing is the size of a position in a specific portfolio or the cash that investors will trade. Traders use position sizing to help them to determine the number of units of an asset they should buy. That allows them to manage risks and maximise returns. To determine the appropriate position sizing, you must consider the risk tolerance and the account size.
Successful traders set themselves apart from those that struggle in making profits by utilising tools like stop-loss, asset allocation, and risks to rewards ratios. If you want to conserve your trading capital, you must take the necessary and tempting risks to survive and thrive in the trading market.
Position sizing and risk management are some of the rules traders always forget to use but significantly impact their success.
Not using stop-loss orders puts you at risk, but placing the stop-loss at the wrong level can sometimes do more harm than good.
Follow these easy steps to place your stop-loss:
- decide how much you are willing to lose on the trade
- on the chart, identify the potential area to take profit and to close, eventually the trade in loss (make sure that the potential profit is at least double the loss)
- now you can calculate the position size based on the stop-loss you will set for your trade
Looking at the example above, if you expect a max loss on your trade of 20% and you want to lose no more than $100, the size of your position should be no more than $500 (100 / 20%).
Stick To the Plan & Forget Emotions
Trading is ultimately a psychological game, so you should have a trading plan in place before you enter a trade. It’s easy to plan your strategy before entering the trade. The challenging part is to manage the position when money is involved. Staring at a loss increasing, just like a profit compounding, may negatively impact your ability to assess the best action to execute next.
With a proper plan, you know at any time what to do and how to react to certain price moves. You must set a stop loss and take profit, sticking to them. These two tools are essential if they need to control their emotions since they will instantly sell on their behalf.
A growing feeling of fear or greed is common when you trade. It is part of human nature. However, it’s essential to avoid involving emotions and turn the feeling of stress into confidence.
An example? Without a plan, you will usually sell on dips and buy on price pumps. Nevertheless, those are often the opposite actions you should take.
Follow these tips to stick to the plan:
- plan your strategy
- stick to the plan
- assess how the plan worked out
- adjust the plan
- start back from 2.
Only this way, with time, you will learn to be a better trader. Experience is the best master.
Trading using a smart assistant, like Coinrule, to build automated trading strategies will make this process much easier.
Bonus Tip: Accept the Loss
Losses are inevitable in trading. Sometimes traders experience technology meltdowns, discipline lapse, or a trading capital bleed out, leading to huge losses. After a loss, the most important thing to do is accept it and find ways to bounce back.
Although a loss can lead to fear, successful traders should avoid trading in fear as it can be blinding. A losing streak and a significant loss can make you question yourself and force you to get out of trades as quickly as possible. However, you should apply psychological strategies as part of your investing strategies when dealing with huge losses. Before you begin trading again, ensure that you identify and resolve all the issues that led to the losses to prevent them from reoccurring.
Significant losses lead to revenge trading. Please refrain from it!
After a large loss, look back and analyse why that happened. Take note and learn from it. If you incorporate the lesson into the new trading plan, you can view that loss and investment to become a more profitable trader.
There you have simple rules traders always forget to use. Traders should continue learning and adapting to the market even after following these rules. Realise that you will make mistakes along the way but do not shy away from them. Instead, learn from them and trade with confidence.
What is Coinrule
Coinrule allows you to create trading rules that run automatically across your favourite exchanges.
With Coinrule you can easily develop your own trading rules and strategies and set them up to run automatically. It is the “if-this-then-that” for cryptocurrency trading that allows you to plan your crypto trading rather than having to sit for hours in front of charts. Best of all? No coding skills are required, meaning anyone can use Coinrule.
I am not an analyst or investment advisor. Everything that I provide here site is purely for guidance, informational and educational purposes. All information contained in my post should be independently verified and confirmed. I can’t be found accountable for any loss or damage whatsoever caused in reliance upon such information. Please be aware of the risks involved with trading cryptocurrencies.