10 Commandments for Trading Success

Learning to trade forex is a huge task which needs clear guidance. Luckily, you’ll find that here. The framework provided over the next posts will ensure that you are equipped for the challenge. We shall call this post: the 10 commandments for trading success.

This series will provide steps to trading success and competency within all financial markets. Before starting, you’ll need a broker. Next, we are going to make sure you have a trading plan – one which covers every single aspect of a trade’s life cycle. This is the trade idea conception, entering the market, managing the trade, exiting and post trade routine.

After you have opened a brokerage account (demo to begin with), perhaps you should read some of the content on this site. One of my favourite articles is about trading with high reward-to-risk. This article makes a solid case for taking smaller ‘chunks’ out of the markets.

Another of my favourite articles, and a very important concept in my trading, talks about magnetic price points. These areas in the markets become essential to a high probability trading strategy, and are key areas to aim for in a trade.

That’s enough advanced topics for now, let’s get into the 10 Commandments for Trading Success. Note that some commandments will overlap, which is fine – trading nor markets occur in a vacuum unaffected by other events.

Commandments for trading success

 

  • 1 – Put the odds in your favour. Trading is gambling. You need to be the casino owner, not the punter at the roulette table. The casino knows that it will win over time, even though losses are frequent, and inevitable. The good trader is the casino owner. They know the odds and have them in their favour over a large number of trades.

 

  • 2 – Know where you want to do business ahead of time. Having a trading plan is an essential part of learning to trade. Making a trading plan before the market is in full force is a surefire way to protect your emotions. Writing your plan while the markets are calm ensures that impulse doesn’t play a part. Your trading plan will protect from impulsive biases which have crept in during the trading day or week.

 

  • 3 – Let price come to you.

    This point is very much tied in with the last, but equally important in it’s own right. Chasing the market is a great route to getting a bad price. Your initial plan flies out of the window and you end up entering at a bad price. This is bad for both your winrate and your reward-to-risk.

 

  • 4 – Know where the key levels are. Having these market levels or areas marked out ahead of time will ensure you are aware of the market landscape. Your key levels must be objective and not added on a whim to fit your bias. The key levels are places in price which big traders are aware of and prepared to trade at.

 

  • 5 – Anything can happen. You do not control any part of the market. The market moves around and you have no control over it at all. The good news is that you don’t need to know what’s going to happen next in order to make money. You simply need to have a defined edge over a large sample of trades.

 

  • 6 – The trend isn’t always your friend. An area of contention for me and some other traders. ‘The trend is your friend’ is somewhat of a cliche in the trading sphere. While it can be useful to go with the flow, relying on it is a surefire way to losing. Curve-fitting your plan to just trending markets will ensure that you get torn up when the market changes shape. Be aware of this.

 

  • 7 – Cutting your losers isn’t as easy as it seems. Of course we should strive to make our average losers as small as possible. Cutting your losers, purely because the trade isn’t in profit, completely ignores market dynamics in your trade management. Over time, you will find cues to get out of trades early. These cues will be driven by market mechanics and be robust over time, not just exiting because a trade is offside.

 

  • 8 – Keep it simple. Keeping charts plain and simply having key levels can go a long way. New traders often add every single indicator in existence to their charts – don’t do this. Price is the driving force behind every trader’s decision. Adding RSI, MACD, bollinger bands and every other indicator is distracting. Not only that, they can provide conflicting signals and might not work in tandem. Keep it simple.

 

  • 9 – Trade the market. While this may sound obvious at first, take note. Your trading decisions need to be made based on the structure and dynamics of the market – not your profit or loss. Trader Dante has spoken about this point at length – letting your decisions be controlled by your PnL. It’s essential that you grasp this concept and internalise it in your trading.

 

  • 10 – Exploit the areas of asymmetric risk/reward. There exist price points in the market, where you can exploit market asymmetries. This means that the reward will be greater than the risk. This can be in the form of risk-reward on a trade, or trade winrate. If you find these areas and can exploit them consistently, you’re doing something right.

 

Next article: How Forex is Priced and Why it Moves.

 

The information shown has been put into a quick-look infographic:

Infographic: 10 Commandents of Trading