10 Essential Trading Rules of Professional Traders

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Have you ever wondered how professional traders see the market differently?

How do they continue to make exceptional returns day after day, while 90% of retail traders lose money on a daily basis?

Here are my top 10 trading rules I developed, after over 10,000 hours of trading professionally, and I hope that this will help you take your trading to the next level.

In this post, I’m going to talk about the trading rules which professional traders use, and how you can apply them to your own trading.

1. Always be disciplined

• Follow your plan and rules
• Do not be swayed by your emotions to act otherwise
• Do not create excuses to break the rules – this time is NOT different!

2. Plan the trade, trade the plan

• Always cut your losses according to plan
• Always let your profits run according to plan
• Separate your planning from your execution

3. Expect losses

• Losses are part of trading – accept them. This will reduce emotional resistance when the time comes to do so.
• Do not take a trade unless you are willing to accept the risk (possibility of loss) that accompanies the trade.
• Accept that you will lose money on some trades
• Take your losses easily when they come
• Do not be stubborn and bend your rules

4. Manage your emotions

• When in doubt or unsure, get out!
• Always analyze objectively
• Clear all positions to have a neutral frame of mind
• Do not act based on greed or fear

5. Focus on trading well

• The goal of a trader is to make the best trades
• Money will naturally follow
• If you focus on money, emotions will get in the way and you will not be able to make the best trades.

6. Do not overtrade

• Be patient. Do not rush into a trade.
• Do not trade when there are no good setups
• Do not try to be in the market all the time
• It is better to miss a boat, than to leave on one full of holes
• One good trade is better than three bad trades
• “There is a time to go long, a time to go short, and a time to go fishing.” – Jesse Livermore

7. Trade what you see, not what you think

• Don’t concern yourself with why things are happening
• Observe what is happening, and act on it
• Ignore the noise – tips, rumours, news, speculations, etc
• Anticipate the future, but trade in the present
• Markets are never wrong, opinions are

8. The trend is your friend

• Don’t enter just because it looks “overbought” or “oversold”
• Don’t try to catch a falling knife
• The easiest money is made trading with the trend
• Make sure you have an edge before you enter the market
• Put as many factors in your favour as possible

9. Do not repeat your mistakes

• Keep good records of your trades and thought process
• Analyze your mistakes, then move on
• Do not make the same mistake again
• Continuously improve yourself

10. Have realistic expectations

• Do not try to make stellar returns overnight
• Aim for small consistent returns over a period of time
• Do not expect to become an expert overnight
• Trading takes time to build experience

Summary

The difference between a newbie trading and a successful trader is how good their trading rules are, and how well they can follow their rules.

If you trade without any rules, you will be always be second-guessing your decisions, and then regretting your decisions when they turn out to be wrong. This creates a lot of unnecessary mental anguish.

With trading rules, it reduces the stress of decision-making, because you can separate the planning phase (where you create the rules) from the execution phase (when you are actually trading).

Lastly, having rules makes it easier to systematically replicate your success over and over again, because once you know the rules which work, you can just keep applying them over and over to get the same results, whereas if you don’t have rules, you won’t know what actually works.

Now that I have shared all my best trading rules, which rule do you think will make the biggest difference in your trading results?

Let me know in the comments below.

If you would like to learn how to get started in trading, also check out: “The Beginner’s Guide to Trading & Technical Analysis”

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Spencer Li

Spencer is an avid globetrotter who achieved financial freedom in his 20s, while trading & teaching across 70+ countries. As a former professional trader in private equity and proprietary funds, he has over 15 years of market experience, and has been featured on more than 20 occasions in the media.