In the many videos, books, courses, and trades I have made, read, and watched, I have come up with five things that I always want to come back and read. You can call them rules, but while there are rules in technical analysis and trading, those rules go out the window when it comes to human emotion. That's why so much trading is done by bots because we want to minimize that human involvement, but a bot can't spot some really good trades or signs in the market. So, I will write down those five "rules" of mine for you to see and for me to come back to when needed.
Risk Management
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Risk management is the most technical of all rules because it's simple; it's solely based on percentages and what any individual can afford. So, how do I do all that?
- Set your initial capital. The amount must be something that you can lose and won't affect your daily life.
- Determine the percentage of your total portfolio you would want to use in every trade. Most books say 1% for day traders; I think that up to 2% is acceptable. Of course, it depends on the trade.
- Set your stop-loss. Now, I don't want to risk more than 10% of the amount I am using on a trade because then it will be easier to win it back.
- Set a stop-loss in every trade. I have lost so much money because I didn't set a stop-loss and I avoided a loss of a lot more money because I had.
- When you get emotional, just stop trading and go for a walk.
Do not make trading experience anything more than an indicator of a higher probability
To put it simply, don't become arrogant because if you become arrogant, you won't be paying attention to details like stochastic RSI, MACD, hidden divergence, etc., and that will definitely ruin a trade and make you lose money.
To make money in the market, you don't need to know what is going to happen next
You just have to stick to what the technical analysis and fundamental analysis of the asset you are trading are telling you. And even then, you have to account that the market can go the other way. Technical analysis can't predict what will happen, but it can give an edge and feeling of what is happening right now.
Know that there is a random distribution among winners, losers, and break-evens for any given trade.
Don't start thinking that this trade is a winner or that a loser. Think that you have a 70% win rate in your trades, which are in random order.
No matter the current price action and its relation to the past, every moment in the market is unique.
Don't get me wrong, past levels, prices, supports, etc. definitely play a role when trading. But after how many attempts or after how many days, weeks, months, those levels become insignificant. We always have to look at those past levels, but always expect them to fail in order for new ones to be created. Remember, a chart shows the sentiment on that particular time, and technical analysis and those levels become important because many people like us are watching them. When they stop watching them, then they become irrelevant.
We all have to understand that a lost trade now means nothing in the long run. I might lose a trade now and win 10 after that. But if you are disciplined in those things, then you will be profitable in the long run.
“Trading effectively is about assessing probabilities, not certainties” – Yvan Byeajee
P.S There are a lot of books you can read to help, i really like those two because of the emotional help they can give you
Emotion Free Trading - Larry Levin
Trading in the Zone - Mark Douglas
If you liked this post you can read more about trading in some of my previous posts
Gaining An Edge Over Other Traders
How is the ROI time calculated Rule 72
Risk management in leverage trading