◷ Last updated
When it comes to Technical Analysis, there are just 5 Trading Rules you must respect in order to become a profitable trader.
The Stock Market, the Foreign Exchange, the Crypto Market and all the other Markets, offer every single day a countless number of trading opportunities which are there to be exploited.
Unfortunately, many traders do not respect a few simple rules which could turn the performance from average to extremely profitable.
In this article, you will learn how these 5 simple Trading Rules can have a huge impact on your Trading Performance.
So, what are they?
1. Keep it Simple
It might sound obvious but it is actually the most difficult rule to respect.
Yes, because the more you progress along your learning curve, the more you tend to add complexity to your trading which is ultimately negative for your overall Trading Performance.
In a separate article, we discussed how many trading indicators you should use on your chart to keep it simple and yet very effective.
But that’s not all.
It also comes down to have a plan before sudden movements happen in the Market.
For instance, you must have a plan on how to trade news, otherwise, what happens is that you act impulsively, adding pressure and complexity to an activity that would be otherwise very simple and rather mechanical.
So, keeping it simple is nothing more than a set of actions and decisions which you must have taken even before looking at your chart.
Once you learn to develop a simple approach to the Markets (and to your charts), you will eventually gain full control of your Trading.
2. Stick to Evidence
How many times you took a trade just because “the price was supposed to…“?
In many years of trading, we’ve heard a countless number of times similar statements from traders jeopardizing their trading account.
“I shorted the pair because the price was just too high but it moved even higher and triggered my Stop Loss”.
“I aggressively bought the stock because it felt so cheap but now it’s down 65% in just two months”.
“The pattern was just perfect! I don’t know what do think… this Market is just unpredictable.”
All these sentences have one trait in common, which is that those traders did not respect a very basic rule in trading.
Always stick to the evidence!
Never open a new trade just because the price is “supposed to…“, or because “everyone agrees on the fact that…” or even because “at this level it feels…“.
Before trading, let it prove that the price wants to move in your direction.
You always have to have the evidence that your decision is the correct one.
Not doing that is just betting and playing with your trading account, both activities that will ultimately destroy your confidence and empty your account as well.
What you want is to identify great Trading Setups which you tested and verified over time.
3. Be Patient
It is a common mistake to lose patience because, for some time, opportunities don’t come.
However, you can easily master your patience when you understand this: markets are cyclical!
If markets were not cyclical, Technical Analysis would not exist.
In fact, Technical Analysis is based on the fact that you can confidently trade future patterns based on the evidence that those same patterns led to a certain result in the past.
So, every time you feel like there are not good opportunities and you are tempted to take a trade even if it does not fully respect your trading rules, think twice.
The time always comes when great opportunities arise.
It could be in an hour, in a day or in a week but the best opportunities always come.
When you learn to master your patience, you are sure that you will never make foolish mistakes again.
4. Respect your Strategy
Never break your rules!
It takes time to find great Trading Setups and building a strategy around them so why should you break your rules?
Unfortunately, it is not uncommon to see traders breaking their rules.
Do you want an example?
You are in a trade and it’s moving up like you expected.
You are making $100 and you expect to make around $400.
Suddenly the price skyrockets!
From $100 you are now making $600 in a matter of minutes.
Here is when emotions take control and greed prevails.
You don’t close your position because you think that if profits went from $100 to $600 in a very short time it could go even further.
You believe that the hype will push prices even higher.
Unfortunately though, as quickly as it moved up, it now moves down.
It drops and you rapidly have to move the Stop Loss to breakeven.
Luckily you did because the price fell even further.
You lost $400 in terms of missed profits just because you did not respect your perfectly working Trading Strategy.
The example above is very common among non-professional traders and it shows how it is crucial to always stick to your strategy.
If you break the rules you will always end up, at best, reducing your overall trading performance.
5. Develop a Routine
As a trader you know that the Markets are always there for you!
The Stock Market offers plenty of trading hours, the Foreign Exchange is open 24 hours and the Crypto Markets never stop.
However, you must respect the Market you are trading in.
You cannot pretend to trade whenever you want and take whatever you want.
The Market has its timing and so should you.
Throughout the day and the week you must have a trading routine.
Research shows that developing a routine offers multiple benefits:
- Keeps you focused on the Trading Activity
- Makes you follow your Trading Rules
- Improves your willingness to do better
- Helps you track the achievements
- Supports you during stressful times (e.g., no opportunities, losing streak, …)
The good news is that there is not a fixed routine and you can develop yours.
It could be weaking up early in the morning, updating your watchlist once or multiple times a day, using a screener, setting alarms, logging your trades, adjusting your strategy and so on.
Literally, you are free to develop your own Trading Routine but, once you do, you will always have a validated method to go through your trading days.