10 rules of successful trading

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5. Always keeps learning

You cannot learn trading in a day or even a few weeks, sometimes not even in months. Successful traders keep reading all the new research on technical analysis they can get their hands on. They also read a number of books every month about techniques, about trading psychology and about other successful traders and how they manage their accounts.



I often like to think about traders as jihadis; unless there is a fire in the belly, unless there is a strong will and commitment to win, it is impossible to win consistently in the market.

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6. Always be alert to opportunities of making some money with less risky strategies as well

Futures trading, for example, is a very risky business. The best of chartists and the best of traders sometimes fail. Sure, it gives the highest returns but these may not be consistent -- and the drawdowns can be large.



Traders should always remember that no matter how good your analysis is, sometimes the market is not willing to oblige. In such times the 4-5% that can be earned in covered calls or futures and cash arbitrage comes in very handy. It improves the long term sustainability of a trader and keeps your profit register ringing.



Traders must learn to live with lower risk and lower return at certain times in the market, in order to protect and enlarge their capital.


Disciplined traders have reasonable risk and return expectations and are open to using less risky and less exciting strategies of making money, which helps them tide over rough periods in the markets.

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7. Treat trading as a business and keep a positive attitude

Trading can be an expensive adventure sport. It should be treated as a business and should be very profit oriented. Successful traders review their performance at regular intervals and try to identify causes of both superior and inferior performance.
The focus should be on consistent profits rather than erratic large profits and losses. Also, trading performance should not be made a judgement on an individual; rather, it should be considered a consequence of right or wrong actions.
Disciplined traders are able to identify when they are out of sync with the market and need to reduce position size, or keep away altogether. Successful trading is like dancing in rhythm with the market.
Unsuccessful traders often cut down on all other expenses but refuse to see what might be wrong with their trading methods. Denial is a costly attitude in trading. If you see that a particular trade is not working the way you had expected, reduce or eliminate your positions and see what is going on.
Most disciplined and successful traders are very humble. Humility is a virtue that traders should learn on their own, else the market makes sure that they do. Ego and an "I can do no wrong" attitude in good times can lead to severe drawdowns in the long term.
Also, bad days in trading should be accepted as cheerfully as the good ones. So disciplined traders maintain composure whether they have made a profit or not on a particular day and avoid mood swings.
A good way to do this is to also participate in activities other than trading and let the mind rest so that it is fresh for the next trading day.

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8. Never blame the market for your reverses

Disciplined traders do not blame the market, the government, the companies or anyone else, conveniently excluding themselves, for their losses. The market gives ample opportunities to traders to make money. It is only the trader's fault if he fails to recognise them.



Also, the market has various phases. It is overbought sometimes and oversold at other times. It is trending some of the time and choppy at others. It is for a trader to take maximum advantage of favourable market conditions and keep away from unfavourable ones.



With the help of derivatives, it is now possible to make some money in all kinds of markets. So the trader needs to look for opportunities all the time.
To my mind, the important keys to making long term money in trading are:
Keeping losses small. Remember all losses start small.

• Ride as many big moves as possible.
• Avoid overtrading.
• Never try to impose your will on the market.
• It is impossible to practice all of the above perfectly. However, if you can practice all of the above with some degree of success, improvement in trading performance can be dramatic.

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9. Keep a cushion

If new traders are lucky to come into a market during a roaring bull phase, they sometimes think that the market is the best place to put all one's money. But successful and seasoned traders know that if the market starts acting differently in the future, which it surely will, profits will stop pouring in and there might even be periods of losses.


So do not commit more than a certain amount to the market at any given point of time. Take profits from your broker whenever you have them in your trading account and stow them away in a separate account.
I say this because the market is like a deep and big well. No matter how much money you put in it, it can all vanish. So by having an account where you accumulate profits during good times, it helps you when markets turn unfavourable.


This also makes drawdowns less stressful as you have the cushion of previously earned profits. Trading is about walking a tightrope most times. Make sure you have enough cushion if you fall.