Here are some some basic rules as a trader that I have written on stickies in front of me so I never EVER forget them (again) and find myself in a position of regret (loss) and the reasons behind these rules.
#1 Protect your capital.
This is an obvious one but when your in a trade, and as discussed in other blog posts from other traders, your emotions can conquer your rational mindset and take control of the trade usually resulting in lost gains or lost capital which is in contradiction to the first rule. All of these rules that I have created for myself are a subset of big #1 because they were the obvious pitfalls that I fell victim to, and as a fresh trader, that I found myself in constant need of reminding myself of.
#2 Set PROPER stop losses.
If you’re trading on Bitmex then you will know what I mean when I put extra emphasis on the “proper” part of rule #2. Being on the same page as the ones who actually control the movement of the market really helps. They are going to be seeking liquidity and driving the price to where most people would put their stops in for the most obvious setups. Understanding that fact, and also the general mentality of other retail market investors can keep you from being that flea that gets scratched off of the dogs back and no longer gets to hitch the free ride. (Analogy added for emphasis of the common retail traders position size and market sway vs. institutional money’s). 🙂
#3 Never FOMO/FUD!!! (FOMO=Fear Of Missing Out) (FUD=Fear Uncertanty Doubt)
When you FOMO into or FUD yourself out of a trade, that is a general term for when you are letting your emotional mindset instead of your rational mindset take control of where the trade is going. These are very common emotions that traders feel when they are in a position and learning to not let them take control is key to keeping a rational mindest and respecting almighty rule #1.
#4 Don’t get greedy.
Again, these are rules that I was breaking that I personally had to be reminded of when I was in the midst of a trade, so that’s why I have some sticky notes with each one written down on my wall in front of my trading desk, but I feel that they are universal feelings that are probably the dominant aspect of most trader’s regrets (losses). #4 does not need a whole lot of explanation other than when you’re in a trade with profit don’t beat yourself up for not catching the wick. Don’t get me wrong, you don’t want to FUD yourself out of a good trade, but also don’t feel bad about taking profits while the candle you’re riding is still green. Which is relevant to my next rule of…
#5 Research your exit & entry/reversal point.
Try and follow your given expectations of what price you will enter or exit into or out of the market! This was another one which I felt I needed reminding of so I did not step out of rational decision making and inevitably give in and break #3.
#6 After a big win or loss, reflect.
When you take a loss or a win it’s important to take as long as you need to reflect on what went well or what went wrong. After all, our experience can be our own best teacher and if we want to respect rule #1 then we need to take into consideration what has brought us to that point so we can learn from your experience. Plus, just taking a minute to step away from your desk after winning or losing allows your emotions to settle and the task of reflecting on the technical aspect of how your trade went down brings you back into a rational mindset. After all we are all humans (mostly) and we all feel emotions. I for one, no matter how hard I try cannot completely shut off my emotions when trading, but I can learn ways to not let my emotions take over my mindset. Recognizing those feelings of FOMO, FUD, and GREED is important so you can prevent them from controlling your trade.
These have been a list of my rules I had to keep reminding myself of and also the reasoning behind them. Others may have an entirely different approach for basic rules that they feel will keep them in shape, so that may vary, but all in all I feel that as traders it’s obvious that we are here to make money, so these types of rules we establish for ourselves are created, in the larger picture, to keep us from losing our capital and are probably pretty universal.
Thanks for reading and I hope that these reminders help you as much as they have helped me! I’m sure that as I progress as a trader there will be others to add. Shoutout to everyone in the chat room! I have learned a lot about my own trading style by understanding other’s and have been honing the perfection of my strategies thanks to the group reflection and input that can be had in solid company of like minded traders.
Written by ChartBulls member -Baxter