Top 10 Rules For Successful Trading

KEY TAKEAWAYS

  • Treat trading like a business, not a hobby or a job.
  • Learn everything about the business.
  • Set realistic expectations for your business.

Rule 1: Always Use a Trading Plan

A trading plan is a written set of rules that specifies a trader's entry, exit and money management criteria for every purchase.

With today's technology, it is easy to test a trading idea before risking real money. Known as backtesting, this practice allows you to apply your trading idea using historical data and determine if it is viable. Once a plan has been developed and backtesting shows good results, the plan can be used in real trading.

 

Sometimes your trading plan won't work. Bail out of it and start over.

The key here is to stick to the plan. Taking trades outside of the trading plan, even if they turn out to be winners, is considered poor strategy.

Rule 2: Treat Trading Like a Business

To be successful, you must approach trading as a full- or part-time business, not as a hobby or a job.

If it's approached as a hobby, there is no real commitment to learning. If it's a job, it can be frustrating because there is no regular paycheck.

Trading is a business and incurs expenses, losses, taxes, uncertainty, stress, and risk. As a trader, you are essentially a small business owner and you must research and strategize to maximize your business's potential.

Rule 3: Use Technology to Your Advantage

Trading is a competitive business. It's safe to assume that the person sitting on the other side of a trade is taking full advantage of all of the available technology.

Charting platforms give traders an infinite variety of ways to view and analyze the markets. Backtesting an idea using historical data prevents costly missteps. Getting market updates via smartphone allows us to monitor trades anywhere. Technology that we take for granted, like a high-speed internet connection, can greatly increase trading performance.

Using technology to your advantage, and keeping current with new products, can be fun and rewarding in trading.

Rule 4: Protect Your Trading Capital

Saving enough money to fund a trading account takes a great deal of time and effort. It can be even more difficult if you have to do it twice.

It is important to note that protecting your trading capital is not synonymous with never experiencing a losing trade. All traders have losing trades. Protecting capital entails not taking unnecessary risks and doing everything you can to preserve your trading business.

Rule 5: Become a Student of the Markets

Think of it as continuing education. Traders need to remain focused on learning more each day. It is important to remember that understanding the markets, and all of their intricacies, is an ongoing, lifelong process.

Hard research allows traders to understand the facts, like what the different economic reports mean. Focus and observation allow traders to sharpen their instincts and learn the nuances.

World politics, news events, economic trends—even the weather—all have an impact on the markets. The market environment is dynamic. The more traders understand the past and current markets, the better prepared they are to face the future.

Rule 6: Risk Only What You Can Afford to Lose

Before you start using real cash, make sure that all of the money in that trading account is truly expendable. If it's not, the trader should keep saving until it is.

Money in a trading account should not be allocated for the kids' college tuition or paying the mortgage. Traders must never allow themselves to think they are simply borrowing money from these other important obligations.

Losing money is traumatic enough. It is even more so if it is capital that should have never been risked in the first place.

Rule 7: Develop a Methodology Based on Facts

Taking the time to develop a sound trading methodology is worth the effort. It may be tempting to believe in the "so easy it's like printing money" trading scams that are prevalent on the internet. But facts, not emotions or hope, should be the inspiration behind developing a trading plan.

Traders who are not in a hurry to learn typically have an easier time sifting through all of the information available on the internet. Consider this: if you were to start a new career, more than likely you would need to study at a college or university for at least a year or two before you were qualified to even apply for a position in the new field. Learning how to trade demands at least the same amount of time and fact-driven research and study.

Rule 8: Always Use a Stop Loss

A stop loss is a predetermined amount of risk that a trader is willing to accept with each trade. The stop loss can be a dollar amount or percentage, but either way, it limits the trader's exposure during a trade. Using a stop loss can take some of the stress out of trading since we know that we will only lose X amount on any given trade.

Not having a stop loss is bad practice, even if it leads to a winning trade. Exiting with a stop loss, and therefore having a losing trade, is still good trading if it falls within the trading plan's rules.

The ideal is to exit all trades with a profit, but that is not realistic. Using a protective stop loss helps ensure that losses and risks are limited.

Rule 9: Know When to Stop Trading

There are two reasons to stop trading: an ineffective trading plan, and an ineffective trader.

An ineffective trading plan shows much greater losses than were anticipated in historical testing. That happens. Markets may have changed, or volatility may have lessened. For whatever reason, the trading plan simply is not performing as expected.

Stay unemotional and businesslike. It's time to reevaluate the trading plan and make a few changes or to start over with a new trading plan.

An unsuccessful trading plan is a problem that needs to be solved. It is not necessarily the end of the trading business.

An ineffective trader is one who makes a trading plan but is unable to follow it. External stress, poor habits, and lack of physical activity can all contribute to this problem. A trader who is not in peak condition for trading should consider taking a break. After any difficulties and challenges have been dealt with, the trader can return to business.

Rule 10: Keep Trading in Perspective

Stay focused on the big picture when trading. A losing trade should not surprise us; It's a part of trading. A winning trade is just one step along the path to a profitable business. It is the cumulative profits that make a difference.

Once a trader accepts wins and losses as part of the business, emotions will have less of an effect on trading performance. That is not to say that we cannot be excited about a particularly fruitful trade, but we must keep in mind that a losing trade is never far off.

Setting realistic goals is an essential part of keeping trading in perspective. Your business should earn a reasonable return in a reasonable amount of time. If you expect to be a multi-millionaire by Tuesday, you're setting yourself up for failure.

Conclusion

Understanding the importance of each of these trading rules, and how they work together, can help a trader establish a viable trading business. Trading is hard work, and traders who have the discipline and patience to follow these rules can increase their odds of success in a very competitive arena.

Grab our Free Forex Starting Guide Here: https://pipphenes.com/products/free-forex-starting-guide

Other articles:

K.I.S.S. – ‘Keep it Stupid Simple Forex Trading Method’

The acronym K.I.S.S. stands for Keep It Stupid Simple. This acronym is as applicable to the field of Forex trading as it is to any. ‘Keeping it simple’ in regards to your Forex Trading means keeping all aspects of your Forex Trading simple, from the way you think about price movement to the way you execute your trades.

Simplicity is the most often and easily overlooked ingredient to profiting long-term in any financial market. I’m sure you have probably tried using complicated and (or) expensive trading methods at some point and subsequently realized that they weren’t working how you had thought. This article will help you understand why people tend to over-complicate Forex trading and how you can use the power of simplicity to your advantage.

The truth about Forex trading

So you’re excited about the latest and greatest programmed indicator that has been getting a lot of attention in the trading forums you visit regularly. You just know that this one will work because the returns that its creators have posted look absolutely brilliant, and you can’t wait to try it out. That last indicator-based method didn’t work as you expected it to, but this new one seems like it makes a lot more sense and all the testimonials you’ve read just can’t be wrong…

Many traders have had similar experiences to the one above; they think that by trying enough trading systems and forex indicators, eventually they will hit upon that one that is their automatic ticket to consistently profiting in the markets. This belief is exactly what causes many traders to blow out their accounts time and time again only to find themselves full of frustration and confusion. Simply put, there is no ‘free lunch’ in trading, still, many traders think by finding that one great trading system or indicator they can sit back and watch the money roll on. The truth is that nothing that is fully systematic will ever be a truly effective way to trade the forex market because the market is not a static entity that can be tamed through black box mechanical systems. It is a volatile beast that is driven from human emotion, and human beings vary in their emotional reactivity to specific events, especially when their money is on the line.

The fact is, that while almost all traders would say they want to make trading a simple process, they are going about it in the totally wrong manner. Trading can only become simple once you forget about the idea of finding a perfect indicator-based trading system that will work in all market conditions. Markets are just too volatile and complex to ever be dominated by a piece of software code or a mechanical set of trading rules.

How do you “Keep It Simple”?

How does one keep their Forex trading simple? Well, no pun intended…it’s actually pretty simple; STOP looking for the next “perfect” Holy-Grail trading system and START looking at the price bars on your charts. By learning to read price action on a raw, “naked” price chart, you are learning an art and a skill at the same time. The “art” part of the trading equation is what allows some traders to make a full time living in the markets while the masses who are struggling to find the next best indicator system continue to lose money by trying to fit a square peg into a round hole, so to speak.

Learning the art and skill of price pattern recognition will provide you with a perspective and not a system. This market perspective is what would be considered a trading “method”; many people use the terms “method” and “system” synonymously when referring to trading techniques, however, they are really two entirely different things. A trading method provides you with a way to make sense of daily market movement, whether the market is trending or consolidating, where as a trading system is a strict set of rules that allow for little to no degree of human discretion.

How did famous traders like George Soros, Jesse Livermore, and Warren Buffet make their millions (and billions) in the markets? Not through complicated trading software or lagging indicator based trading methods, but through a discretionary market perspective that was developed through an awareness of price dynamics and market conditions in the various markets they traded.

Clean vs Messy

The purpose of this article is to help you understand that you can use simple price action setups to successfully trade the forex market. Professional Forex traders all have one thing in common; they keep their trading as simple as possible because they know that they need a calm and clear mindset to make money in the market. However, most beginning traders, and many experienced but unsuccessful traders, take the complete opposite approach to trading the markets; they make it as complicated as possible.

The K.I.S.S method, as it relates to Forex trading, is built upon an understanding that the best way to navigate the market is by learning to interpret and trade the raw price action signals that form naturally in the market. By trying to force a set of strict indicator based trading rules around the unbounded arena of financial markets, many traders unknowingly make trading infinitely more complicated and difficult than it ever needs to be.

In the example chart below, we can see a clean and simple price action chart with no indicators.

clean price action chart

In the example chart below, we can see the chart is very cluttered and messy with many indicators that will confuse you and distract you from the price action below…

trading with indicators

If the power of simplicity in Forex trading was not clear to you yet, analyzing the charts above should make it more than obvious to you. I have seen many beginning and struggling traders try to trade with charts that look like the second one above with all the indicators on it. To be honest, I’ve seen traders trying to trade on charts that actually have more indicators than the example above…believe it or not.

As humans, we seem to have an almost innate tendency to make the easiest part of trading (chart analysis and finding trades) a lot more difficult and complicated than it needs to be. Once you accept the fact that chart analysis does not have to be difficult, it will help you to focus more clearly on the more difficult aspects of trading like remaining disciplined and managing your risk properly. Don’t be like the legions of other traders out there who waste a massive amount of time and money trying to figure out what a mess of different indicators and trading robots are trying to tell them. Learn to analyze the raw price action that the market naturally provides you with and you will be much further along the path to trading success than people trying to trade on charts like the one above.

Conclusion:

Now that you have a basic understanding of the why and the how of the KISS method, you can begin to work on practicing its implementation. Practice trading specific price action strategies combined with support and resistance levels for at least 3 months on a demo account, or until you are consistently profitable, before attempting any of this on a real money account. Keep in mind that trading is inherently risky and this information is for educational purposes only and it is not met as a recommendation to buy or sell any financial instrument. That being said, if you are dead set on becoming a profitable and consistent forex trader, stick with the KISS forex trading method and master the concepts outlined in this article and in our Forex trading course, and you will begin to see that profitable trading does not need to be complicated.

 

Free Signals (and more) available at t.me/pipphenes

August worst month for Trading? And why?

https://www.tradingview.com/chart/DXY/WvyKldVG-August-worst-month-for-Trading-And-why/

 

The Big Drought
A 10-year analysis on the S&P shows that the markets remain the poorest in the three summer months – June, July and August. Most traders tend to sell their positions in May, and try to reinvest in a fresh positions once the summer is over.

August Is the Worst Summer Month
Most investors and Forex traders in Europe and the North America go on holidays during the month of August. This leads to lower trading volume and significant price actions. Just for example: August 2008 was misleadingly good for the S&P , advancing 1%. However, August 2010 was completely miserable for the S&P , dipping 4.5%, and August 2011 was also miserable for the S&P 500 , plunging almost 10%. The month is characterized by sideways trends and momentum swings. However, the trend typically breaks right after the Labor Day holiday in the U.S., and most traders returns to active trading once again.

Post-Summer Months (September-December)
A surge in trading activity usually occurs just after the end of summer, and traders invest in fresh portfolios and positions. These three months therefore represent the best three months to trade in the year.

Another Vacation Spot during the Second Half of December
Forex traders once again stay away from the market in the second half of the December, and celebrate the Christmas Day and the New Year’s Day.

Winter-Spring Action Still Better
The January-May period returned a mediocre 3% on average for the last 10 years, and therefore still does better than the summer months, providing excellent opportunities for traders, continuously for the first four months of the year.



Thee THREE worst months (Summer): June, July, and particularly, August.
The FOUR best months (Autumn): September, October, November, and December.
The FIVE good Months (Winter-Spring): January, February, March, April, and May

What Is The Reason For This Divide?

Any vacation period represents drying up trading volume , and the months following these vacations represent a refreshing return to trading, like rain after a drought.

 

https://www.tradingview.com/chart/DXY/WvyKldVG-August-worst-month-for-Trading-And-why/

What Everyone Needs To Do With Their Money, If You Have Not Already Done So, Right Now:

- Go through your finances and audit everything, cut all unnecessary expenses, especially expenses that do not help generate you income. We like: https://www.personalcapital.com/financial-software but there are many others.

- Build your Emergency Fund (3-6mo expense savings).

- Make sure you have a significant amount of Physical Cash (AND Physical Gold/Silver) on hand. Currently (from what we’ve heard & found) all Physical Gold & Silver is sold out nationwide (USA) and local shops that do have some are charging an enormous premium ($2K+ per oz of Gold) we’ve been preaching about this for 4+ years now! *Also a lot of banks are limiting withdrawal amounts.

- Make sure you have a decent amount of cash in a high interest rate savings account (nothing is high interest any more, fed cut to zero, and we predict they will be going negative later this month. Robin hood has a high interest savings account: We recommend Robinhood -> https://freestock.robinhood.com/pipp2 this link also gets you free stock & lets you invest in stocks, options, and crypto markets. Highly recommend having this handy! New high reward low risk Option trades are coming back soon.

- Keep your job! Improve your skills, read Linchpin by Seth Godin: https://amzn.to/33s5JFj here is the Amazon shortcut for the book, we highly recommend it to everyone. Become indispensable within your organization.

- Pay down/off any high interest debt (18%+), this saves you a lot of money from the interest, it also opens up more credit if you absolutely needed it.

- Double down on side hustles, trading, any other income generating activities. PipPhenes.com is a great option! 😉 This money will be very beneficial! Get/Be ready to take advantage of our signals in FX, Crypto, Stocks/Options, and TCAM (trade copier) if/when you get put on lockdown/lose your job/get laid off/ etc.

- Consider getting registered with Plutus Capital Crypto/Blockchain Fund: https://www.plutusmanagement.com/invest must be approved & minimum investable amount is $1K for 1yr. Traditional markets are down and blockchain/crypto is gearing up for regulations and a massive transfer of wealth. Digital Assets are fixed in supply, sound money, and you own the keys, you are not at the mercy of banks/institutions.

- Don’t panic, it will be over before you know it. Markets will return after they go up in flames.

PipPhenes.com
Support@PipPhenes.com

The Importance of Trading Psychology

Containing emotion and exercising discipline are key to making money

There are many skills required for traders to be successful in the financial markets—the ability to understand a company's fundamentals and the ability to determine the direction of a stock's trend are two of them. But neither of these technical skills are as important as a trader's mindset: the ability to contain emotion, think quickly, and exercise discipline—what we might call trading psychology.

The psychological aspect of trading is extremely important. Traders often have to think fast and make quick decisions, darting in and out of stocks on short notice. To accomplish this, they need a certain presence of mind. They also, by extension, need discipline, so they will stick with previously established trading plans and know when to book profits and losses. Emotions simply can't get in the way.

KEY TAKEAWAYS

  • Market psychology refers to the prevailing sentiment of financial market participants at any one point in time.
  • Investor sentiment can and frequently drives market performance in directions at odds with fundamentals.
  • Understanding what motivates fear and greed can give you the discipline and objectivity needed to be a successful trader and take advantage of others' emotions.

Understanding Fear

When traders get bad news about a certain stock or the general market, it's not uncommon to get scared. They may overreact and feel compelled to liquidate their holdings and go to cash or to refrain from taking any risks. If they do that, they may avoid certain losses, but they also may miss out on gains.

Traders need to understand what fear is: a natural reaction to what they perceive as a threat—in this case, to their profit or money-making potential. Quantifying the fear might help, and traders should consider pondering what they are afraid of, and why they are afraid of it.

By pondering this issue ahead of time and knowing how they may instinctively react to or perceive certain things, a trader can hope to isolate and identify those feelings during a trading session, and then try to focus on moving past the emotional response. Of course, this is not easy and may take practice, but it's necessary to the health of an investor's portfolio.

Overcoming Greed

There's an old saying on Wall Street that "pigs get slaughtered." This adage refers to greedy investors hanging on to winning positions too long, trying to get every last tick. Greed can be devastating to returns because a trader always runs the risk of getting whipsawed or blown out of a position.

Greed is not easy to overcome. It's often based on an instinct to try to do better, to try to get just a little more. A trader should learn to recognize this instinct and develop a trading plan based upon rational business decisions, not emotional whims or potentially harmful instincts.

Setting Rules

To get their heads in the right place before they feel the psychological crunch, traders need to create rules. They should lay out guidelines based on their risk-reward tolerance for when they will enter a trade and exit it—whether through a profit target or stop loss—to take emotion out of the equation. Additionally, a trader might decide that in the wake of certain developments, such as specific positive or negative earnings or macroeconomic news, he or she will buy or sell a security.

Traders would also be wise to consider setting limits on the amount they are willing to win or lose in a day. If the profit target is hit, they take the money and run, and if losing trades hit a predetermined limit, they fold up their tent and go home, preventing further losses and living to trade another day.

Doing Research and Review

Traders should learn as much as they can about their area of interest, educating themselves and, if possible, going to trading seminars and attending sell-side conferences. Also, it makes sense to plan out and devote as much time as possible to the research process. That means studying charts, speaking with management (if applicable), reading trade journals, or doing other background work (such as macroeconomic analysis or industry analysis) so as to be up to speed when the trading session starts. Knowledge can help a trader overcome fear, so it's a handy tool.

In addition, it's important traders remain flexible and consider experimenting with new instruments from time to time. For example, they may consider using options to mitigate risk, or setting stop losses at different places. One of the best ways a trader can learn is by experimenting (within reason). This experience may also help reduce emotional influences.

Finally, traders should periodically assess their performance. In addition to reviewing their returns and individual positions, traders should reflect on how they prepared for a trading session, how up to date they are on the markets, and how they're progressing in terms of ongoing education, among other things. This periodic assessment can help a trader correct mistakes and change bad habits, which may help enhance their overall returns.

The Bottom Line

While it's important for a trader to be able to read a balance sheet or a chart, there is a psychological component to trading that shouldn't be overlooked. Being aware of how fear and greed can impact trading, exercising discipline, developing trading rules, experimenting, and periodically self-reviewing are crucial to a trader's success.

 

Setups, Trades, JPY, COT Data, and Why?

Quick JPY Analysis and how it pertains to XXX/JPY trades especially USDJPY. 

Please Read, There Are Lessons In These Posts
* What's the deal with JPY, Weak? Well USD is weak... So is USDJPY canceled?

JXY is really what we're waiting on now.
(for usdjpy, nzdjpy, audjpy, gbpjpy, eurjpy, etc.)

JXY visualized -> https://www.tradingview.com/x/INnUd7AQ/

Hoping we see the bulls come back by tonights session.
However, we think there's good chance we drop to the crossing on the chart.

Now when you look at the COT data from 01/07/2020
https://www.tradingster.com/cot/futures/fin/097741

What you will see is the big money is closing their JPY long bets (however most are still long) The leveraged funds are currently more short on JPY than long, showing that in the short-term our theory above may be where the bets are.

Time will tell!
.
.
However, in terms of USDJPY -> we need to look at the USD side of the equation.
Taking a look at the COT data https://www.tradingster.com/cot/futures/fin/098662

We see most are short on the Dollar.
*What needs to be considered when looking at this COT data is that it came out on 01/07/2020 DXY was at 96.62 at that time, its now up over 97.30.

They are likely short now.
DXY visual -> https://www.tradingview.com/x/GRu6Ua70/ (shows the 7th with the COT leveraged long data, which is why we don't need to include that data into our analysis)

Point being USD = Short.
If USD is going to get weaker than 'the worst-case scenario' for JPY then our USDJPY short is still safe. 👍🏼

Make sense? 😏

 

Update On Yesterdays Setups/Trades

Close to entry: AUDCHF https://www.tradingview.com/chart/AUDCHF/cQ4FNyv8-AUDCHF-Potential-Long-Around-0-6666/

EURJPY's Setup For Yesterdays Trade: https://www.tradingview.com/chart/06khB7kH/

NZDCAD coming along, waiting for the bear trap area before longing: https://www.tradingview.com/x/W2NNeRhZ/

EURAUD has sofar played out exactly as expected, https://www.tradingview.com/x/GRUH8tO1/ Now we wait.

 

 

Now Taking a Look at Some Other Opportunities

GBPUSD *update from the first post today* -> https://www.tradingview.com/x/RuzXVjBt/ Starting to breakout, just need confirmation before going long.

EURUSD OLD: https://www.tradingview.com/x/kIfhlPIz/
(Like showing the old charts, shows that the old plays worked perfectly)

EURUSD NOW: https://www.tradingview.com/x/41q2WwnZ/ Looking for a similar breakout to GBPUSD for a long play up to the 1.13 area.

NZDJPY still looking to get short: https://www.tradingview.com/x/ApXSSMk5/

Lastly, OIL: https://www.tradingview.com/x/p13dJ3cA/ either way possible.