If you want to grow in trading and avoid silly mistakes, follow these simple yet effective rules. These rules are designed to help beginners trade safely and assist experienced traders in making smart decisions.
1. Follow the Market Trend.
The principle 'the trend is your friend' is recommended by many experts. Many studies show that prices often maintain a clear movement trend for long enough to be profitable if we trade in that direction. Trend-following trading strategies focus on detecting and adhering to the general market trend.
For example, when the market is rising (bullish), prioritize buying orders; when the market is falling (bearish), prioritize looking for selling opportunities. If you go against the general trend (counter to the market), the chance of losses is very high.
To determine trends, tools such as moving averages (MA) are very useful: for example, if the price is above a rising MA, it confirms an uptrend; conversely, if the price is below a falling MA, it confirms a downtrend. Always check higher time frames (1H, 4H, Daily) to grasp the overall direction; only trade when the market trend and technical signals are consistent.
2. Always set stop-loss orders and manage risk appropriately.
Setting a stop-loss level helps limit the maximum amount of money that can be lost in each trade. According to Investopedia, a stop-loss order is a 'risk management tool' designed to automatically sell an asset when the price hits a specified level, thereby limiting losses to a predetermined amount.
For example, you may only allow a maximum loss of 1–2% of capital per trade; Binance Square also emphasizes the rule: 'Never risk >1–2% of capital per trade.'
A stop-loss order also helps you avoid emotional decisions: it 'helps isolate your decisions from emotional factors,' preventing you from holding a position when wrong and nurturing the hope that the market will turn back. In short, a good stop-loss does not completely prevent losses, but it is a 'safety belt' to protect capital and discipline in trading.
3. Be patient, wait for good setups – don’t enter trades recklessly.
There aren’t always opportunities to enter trades. According to trading psychology experts, haste and greed can lead to overtrading and significant losses. Equiti advises traders to 'cultivate patience and, when there are signals, wait for setups with higher probabilities rather than chasing FOMO.'
You should clearly define entry conditions in advance (for example, only trade when MA, RSI, and price patterns all give consistent signals). Investopedia also notes that to avoid impulsive trading, strict rules for entering trades need to be established: 'Adding rules for entering trades can prevent investors from placing orders outside their trading plan.'
For example, you may only trade when the price just breaks through an important level or when technical indicators signal a strong trend. A few well-timed trades will be worth much more than dozens of random trades without a plan.
4. Don’t let emotions dominate.
Psychology is the biggest enemy of traders. Emotions such as fear, greed, or hope often 'cloud judgment and lead to impulsive actions.'
For example, when losing a trade, the FOMO mentality can lead you to want to hold the position or immediately recover the loss, resulting in account burnout. The solution is to strictly adhere to the established plan. Equiti recommends traders to 'focus on disciplined methods, follow the plan, and minimize the influence of emotions.'
Tools such as stop-loss orders and clear take-profit targets also help you maintain discipline. As noted by Investopedia, using stop-loss orders also helps prevent emotionally-driven decisions, avoiding 'holding hope' to try to recover losses. In summary, remind yourself that profits come from planning, not from emotions.
5. Learn and experiment thoroughly before trading live.
Before applying a new strategy, you should test it thoroughly. Backtesting (testing on historical data) is 'a key factor in developing an effective trading system.' This means you use past data to simulate the strategy, assess profits, win/loss ratios, risks…
If a strategy has worked well in the past, it is likely to be effective in the future as well. Additionally, the CFTC also advises beginners to start with a demo account, 'develop strategies and practice before using real money.'
For example, learn and practice on simulators or demo accounts from brokers. Once you clearly understand how the strategy operates and achieve good results across various scenarios, begin trading live. This helps you avoid risks due to lack of experience and protect your initial capital.
6. Keep a Trading Journal.
Maintaining a detailed trading journal (including date and time of opening/closing trades, entry price, stop loss price, reasons for entering trades, results…) helps you improve very quickly. According to TradeThePool, a trading journal allows you to 'fully record all executed trades. By saving information about entry points, exit points, position size, and related details, traders can review and analyze their decisions objectively later… thus identifying patterns, strengths, weaknesses, and areas for improvement.'
In other words, by reviewing trading history, you learn lessons from repeated mistakes and adjust strategies accordingly. An expert also emphasizes that a trading journal is a 'valuable' tool for analyzing trading habits, mistakes, and past successes, thereby gaining experience for the future. Take time each week to review your journal, identify psychological trends, and effective strategies.
7. Only trade with 'risk capital' that you can afford to lose.
Never use essential money (rent, food, debt repayment) for trading. According to the CFTC (Commodity Futures Trading Commission), you should only use risk capital – that is, 'money you can afford to lose without affecting basic living needs or important savings.'
For example, if you have surplus funds to invest, consider it as risk capital and accept the possibility of losing part of it. If you use money from your salary or borrow, the psychological pressure when trades fail will be very heavy. When you only use spare money, your mindset will be more relaxed, aiding in rational decision-making and persistent adherence to your strategy.
8. Don't blindly copy the trades of others.
According to the CFTC, you should build your own trading plan that fits your goals and risk tolerance instead of blindly following signals from strangers. Each person has different accounts, timeframes, profit goals, and loss tolerances.
The feeling of wanting to 'follow' others often leads to major mistakes: for example, the other person may succeed in a rising market while trading with full capital, but you are using only 10% margin, making copying their trades very risky.
Even the CFTC warns not to trust the rampant 'signals' online or pay for courses promising absolute success: 'Don’t pay for signals or programs that promise successful trading… there is no 'silver bullet' that guarantees results.' Research and make decisions based on your own analysis, only using others' opinions selectively.
9. Regularly update news and market events.
Economic news and events can cause prices to move very strongly and unexpectedly. Many trend traders also integrate economic news into their decision-making: they monitor news such as unemployment rate changes, central bank interest rate decisions… as these events 'can have a significant impact on market direction.' Similarly, Avatrade notes: 'Economic news and data are among the main triggers that create volatility or significant price changes.'
For example, reports of large corporate earnings, macroeconomic information, or new policies can all cause price volatility. Therefore, before entering a trade, check the economic calendar to avoid trading just before important news is announced. Following the news helps you anticipate risks and find good opportunities when the market reacts to the news.
Daily Habits Should Be Formed.
Consider the trend on larger time frames: First, identify short-term and long-term trends on larger time frames (1H, 4H, Daily).
Mark important support/resistance zones: Use price charts to find price levels where trends or reversals occur (accumulation zones, previous highs or lows).
Plan thoroughly before entering a trade: Before trading, determine entry points, stop-loss levels, and clear targets. This process helps you adhere to discipline when the market fluctuates.
Determine the risk ratio for each trade: Always calculate position size based on the maximum acceptable loss (e.g., 1–2% of capital) to avoid 'burning' your account when facing losing trades.
Maintain a stable mindset: Practice trading when comfortable, avoid FOMO (fear of missing out) and panic. Remind yourself that 'the market rewards those who are patient, not those who hurry.'
Above all, trading needs to be based on a plan and logic, not feelings. Persistently applying the above rules will help you gradually improve results and avoid foolish mistakes. Remember, 'The Market Rewards Patience' – don’t rush and trade wisely.