10 trading rules every trader must follow diligently

Trading can indeed see you earn a decent profit if successful—but it’s certainly not without risk. Trading is so inherently risky that exponential losses are common, considerably so. What then should a trader do to safeguard their money? How can one follow a trading rule to minimize losses as much as possible, regardless of their choice of asset?

Trading Rule 1. Define your risk before you start

Probably one of the most fundamental rules of trading is knowing what level of risk you’re willing to take. The financial markets are highly volatile and are quick to spit you out if you aren’t properly prepared or disciplined.

Remember, without a solid risk management strategy in place, your ability to manage market movements becomes hindered. This can quickly eat away at your capital and leave you with significant losses. So, how does one protect their money in the most effective way?

• Setting stop-loss orders to automatically exit positions if it moves beyond a predefined level. This will help you limit losses.
• Limit your use of leverage to mitigate potential losses and to avoid depleting your account. While leverage can amplify gains by allowing you to open larger positions with limited funds, if not properly monitored, it can just as quickly wipe out your funds too.
• Pick the right position size by only allocating a small percentage of your total capital to a single position. This does of course depend on your budget and skills, but strategic position sizing will reduce the risk of catastrophic losses.
• Avoid overtrading by conducting proper analysis to make informed decisions and sticking to your trading plan to avoid unnecessary risks.

Trading Rule 2. Develop a strategic plan to stay on track

Along with proper risk management, having an effective trading plan is vital for staying disciplined, reducing emotional decision making, and keeping focused on your goals.  A trading plan is typically comprised of key components like:

• Your trading goals including your target profit levels. These must be realistic and not exceed expectations.
• Your trading budget and how much capital you’re willing to commit to trades. 
• The time you have available to dedicate to trading.
• Your rules for entering and exiting positions, including specific entry and exit points.
• Your risk management techniques.

Rule 3. Develop a robust trading psychology to avoid impulsive decisions

There are a variety of emotions that can impact trading negatively, the most popular being fear, greed, anxiety, stress, and frustration.

The inability to control them can very quickly lead to behaviors like overtrading or holding on to what inevitably turns into losing trades. Building mental resilience can be achieved in several ways.

This includes engaging in mindfulness or meditation practices, taking breaks after losing streaks, or even engaging in physical exercise to calm the mind.

Rule 4. Consider diversifying your trading portfolio to spread risk

Portfolio diversification is a common method used for reducing risk and mitigating larger than necessary losses.

By spreading your funds across different assets, you minimise the impact of a loss in any single trade. This includes stocks, ngoại hối, Mối, hợp đồng tương lai, etc.

In other words, should one trade perform poorly, the losses can be offset by gains in other areas of your portfolio. This may help to stabilise your overall returns and reduce the impact of market volatility.

Trading Rule 5. Keep a journal to record trades and analyse outcomes

A trading journal is an incredibly useful learning tool. It is essentially used to record your trades, track their performance and identify patterns of behaviour that led to certain trading decisions.

Having something to look back on over time offers a great historical benchmark against which to measure future trade.

It’s also a good way to start recognising why you may have chosen to enter and exit certain trades and then do differently going forward, if the outcomes were poor.

Remember to analyse both winning and losing trades to understand what contributed to both outcomes.

Rule 6. Engage in continuous learning to constantly improve your skills

This is a rule that should not be neglected. The financial markets are not stagnant, they are continuously changing and only by keeping up with those changes will you be able to boost your skills.

Regardless of whether you are new to trading or an advanced trader, engaging in consistent learning is key to expanding your pool of knowledge and having the ability to make informed decisions when faced with market moving events.

Trading related education comes in many forms but some of the most popular include those offered by IronFX, namely:

• Trading videos and courses
• eBooks and blogs
• A useful glossary of key trading terms
• Podcasts, seminars and webinars
• Tâm lý giao dịch
• Tools like an Lịch kinh tế, VIP Room, and Market Trends analysis

In addition, IronFX traders can sign up for the broker’s demo trading account in order to gain more practical trading experience on the MetaTrader 4 (MT4) platform.

With access to a simulated trading environment, traders can open and close trades using virtual funds, and assess performance and outcomes. They can also learn how to use technical analysis and indicators to be informed when having to take financial decisions.

Rule 7. Monitoring the markets to stay informed about major events

Complementing your learning should be daily monitoring of the global markets to be aware of any major market moving events.

This includes natural disasters, central bank announcements and other economic releases (e.g. inflation rates, interest rates, market sentiment, investor sentiment, etc), geopolitical conflicts, pandemics, and other similar developments.

Remember that these events have the power to create market upheaval quickly and unexpectedly so being in a position to react quickly and effectively requires vigilance of world news.

One of the most useful ways to keep on track with major releases that could influence price action is by using an Economic Calendar.

The IronFX Economic Calendar covers financial events and economic indicators to help traders worldwide remain updated.

Key economic indicators include Gross Domestic Product (GDP), interest rates, unemployment rate, Central Bank Minutes và Consumer Price Indices (PMIs), and many others.

Rule 8. Implement a trading limit (daily or weekly) to avoid overtrading

As mentioned earlier, if you don’t keep your emotions in check, the risk of impulsive behaviour leading to overtrading increase exponentially.

This makes sticking to your trading plan vitally important. It also means only executing trades that align with the rules and criteria that you’ve set for yourself in your trading plan.

Consider setting daily or weekly limits too to avoid exceeding your budget or executing trades that are likely to cause substantial losses.

Rule 9. Don’t focus on your losses and instead learn from there to avoid repeating them.

Beating yourself up about your losses isn’t going to do anyone any favours. Instead, use them as a learning tool.

Assess the loss to try and understand what went wrong so you don’t repeat the same mistakes. Was it the market? Was the trade an emotionally charged decision?

Do you not conduct your technical analysis correctly? By identifying the reason for what went wrong, you’re less likely to incur that type of loss again.

Rule 10. Engage with your trading community online for additional tips and insights

Trading doesn’t have to be this lonely experience, with no-one to turn to for advice or suggestions.

A massive online community of traders and forums exist, with who you can engage in order to share experiences, tips, ideas, concepts, etc.

There is value in gaining input from experienced traders but be mindful of not being sucked into get rich quick schemes or promises. These are likely to be scams, leading to devastating losses.

Follow the rules with IronFX

Becoming an IronFX trader means unlocking a top-tier, flexible trading experience across multiple asset classes, with an extensive range of account types and rapid trade execution.

This forex broker, trusted by clients worldwide, provides quick and seamless withdrawals and deposits, alongside market access via the renowned MetaTrader 4 (MT4) platform—one of the most popular trading systems among global traders.

Additionally, the IronFX Academy offers a wealth of educational resources to enhance your skills and gain valuable fundamental trading insights.

Disclaimer: This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.