If I could turn back time, these are the 7 best practices I wish I knew when I first started trading…
#1: Don’t take it personally
Let me ask you…
How do you feel when the market hits your stop loss?
What about when you have 5 losing trades in a row?
How about when the market hits your stop loss and then quickly reverses higher?
Now if any of these happens to you, then it’s easy to…
- Blame the market for “targeting” you
- Blame your broker for hunting your stop loss
- Blame the institutions for rigging the market
But think about it, does any of these make sense?
It doesn’t. Here’s why…
The market doesn’t care about you
The market is huge with thousands of “players” and billions of dollars transacting each day.
There’s no incentive for the market to hurt you or single you out because it doesn’t care about you (or to put it more bluntly, it doesn’t even know you exist).
So, quit thinking the market is out to get you because you’re only a plankton in this financial ocean.
A reputable broker has no incentive to hunt your stop loss
A legitimate broker who’s been in business for years has no incentive for them to hunt your stop loss.
Because they risk losing a customer for life.
And with the power of social media and review sites, this could hurt a broker’s reputation and put them out of business.
Looking from a risk-to-reward standpoint, it’s not good business for a broker to hunt your stop loss.
So does it mean a broker will not hunt your stop loss?
No, because it could easily happen with shady brokers who think short-term.
However, it’s unlikely to happen with a reputable broker who’s been in business for years.
The market is rigged and that’s the nature of this business
Yes, the financial markets are rigged against you.
Those with deep pockets can “temporarily” move the market to trigger stop losses and options expiry level.
So the way I see it, you have 2 choices.
You can blame the system but it won’t get you anywhere besides more losses and frustrations.
Or, you can learn how the game is played and profit from it.
The choice is yours.
#2: Don’t tell your spouse, family, or friends
“Why can’t I tell others that I’m a trader?”
Well, if you’re a consistently profitable trader, then go ahead. There’s no issue with it.
If you’re not, then it’s best to keep quiet about it.
That’s because when you tell your friend that you’re a trader, the first question you’ll get is…
“Have you made money from trading?”
Your answer is probably no.
And you won’t feel good about it as you’re reminded of your losses and how incompetent you are.
The next time you meet up with your friend again, guess what’s the first question he’ll ask you?
“Have you made money from trading?”
Again, your answer is no and you’ll feel horrible about it.
Now when you meet your friend the next time, guess what’s one question he’ll ask you?
You get my point.
So to avoid this “trauma”, don’t tell anyone about your trading endeavor—not even your family.
#3: Start small
Let me ask you…
If you can afford to lose $100,000 without affecting your lifestyle, then how much should you fund your trading account?
That’s because when you first start trading, your performance will be at its worst.
You’ll make trading mistakes, give in to your emotions, and do things that are detrimental to your account like averaging into your losses, widening your stop loss, etc.
This means your $100,000 will not last long.
Start with a small trading account.
This way, your mistakes won’t be costly and even if you lose it all, you have surplus money to fund another trading account.
Because no matter what, you must pay tuition fees to the market.
The only question is, do you want to pay more or less?
#4: Master risk management
Risk management is having protective measures to your trading account so that you’ll never lose it all even if you have 10 losses in a row.
It’s one of the easiest things to master and will pay dividends even after decades into your trading career.
So, how do you apply risk management to your trading?
Here are a few things to follow…
- Know when to exit if you’re wrong
- Don’t lose more than 1% of your trading capital
Let me explain…
#1: Know when to exit if you’re wrong
Before you put on a trade, you must know where to get out if you’re wrong.
This could be using a stop loss level, time-based stop loss, etc.
Whichever technique you use, you must have a plan to get out of a loser or your account keeps bleeding day after day.
If you want to learn more, go read The Complete Guide to Stop Loss Order.
#2: Don’t lose more than 1% of your trading capital
Now, having an exit plan is the first step.
But if you put on the wrong position size, your account could still be wiped out when your stop loss is hit.
So, how do you avoid that?
The key here is to lose a fraction of your capital even if the market goes against you.
To do this, you must know your stop loss level and calculate the appropriate position size for it.
If you want to learn more, go read The Complete Guide to Position Sizing.
The bottom line is this…
Stop loss and position size go hand in hand.
When you increase the size of your stop loss, reduce your position size.
When you decrease the size of your stop loss, you can increase your position size.
Understand their relationship and you’ll never blow another account.
#5: Learn everything from A to Z
As a new trader, there are things you know that you don’t know.
And then, there are things you don’t know that you don’t know (which are even more).
So, don’t focus on one technique or strategy too early because it might not be a good fit.
Instead, explore your options out there.
Learn as much as you can about trading, anything you can get your hands on.
Things like day trading, swing trading, RSI, MACD, stochastic, moving average, counter-trend trading, trend following, etc.
Now here’s the thing:
Not every trading tool you learn will be useful to you.
But the key is to understand what it is, how it works, and the purpose of it.
The moving average is a trend following indicator (what it is).
It works by calculating the average price over a given period and is plotted as a line on the chart (how it works).
You can use moving average to trail your stop loss, identify the area of value, and filter for trending market conditions (the purpose of it).
Once you know the different tools out there, you can pick the right ones to fit your needs—and not blindly follow the herd.
Eventually, you’ll realize 90% of the things you’ve learned is irrelevant.
You’ll discard them and focus on the 10% which is enough to make you a winning trader.
#6: Decide if trading is for you
As much as I hate to say this but, not everyone can be a trader.
Just like how not everyone can be a doctor, lawyer, engineer, etc.
So if at any time you feel trading isn’t for you, then the smart thing to do is quit.
Yes, you might have lost the time, effort, and money that you’ve put into trading.
But what’s worst is putting even more resources into it knowing that it’s not meant to be.
Do you feel me?
There’s no shame in quitting and you’re not a failure.
Winners quit all the time till they find their calling—and go all in.
If trading isn’t for you, then it means you haven’t found your calling.
And I repeat, there’s no shame in quitting.
If you think about this, trading is a means to an end and it isn’t the only medium to achieve your goals.
You can also do things like e-commerce, blogging, content creator, etc.
#7: Don’t quit your job, yet
Let me share with you a true story…
John (not his real name) just started trading the Forex market.
He funded a live account and made a $1,000 profit after a few trades.
So he thought to himself…
“If I can make a $1,000 trading part-time, then I’ll make even more money trading full-time.”
So, John quitted his job to trade full-time.
The first few days were good as he was making consistent profits from the markets.
Then the market changed and the losses crept in.
Eventually, he gave back all his profits and bust his account.
Now, he’s back in the job market looking for work.
So, what’s the lesson?
Don’t quit your job, yet.
Just because you’ve made some money from the financial markets doesn’t mean you can do it full-time—it might be beginner’s luck.
Also, full-time trading requires a different mindset, account size, expectations, etc.
If you want to learn more, then check out 6 Practical Tips to Master Your Mind and Money.
So here’s what you’ve learned:
- Don’t take things personally because the market doesn’t know who you are (or care what you do)
- Don’t tell your family and friends about trading so you have less pressure
- Start with a small trading account because your mistakes will not be costly
- Master risk management because it will pay dividends for the rest of your trading career
- Learn as much as possible so you know what resonates with you—then dive deeper into that topic
- Trading is not for everyone—there’s no shame in quitting
- Don’t quit your job until you are a consistently profitable trader (a few winning trades isn’t counted)
Now it’s your turn…
What’s a good practice to follow in your first year of trading?
Leave a comment below and share your thoughts with me.
Great tips, Rayner. Here’s another one I’d add. Once you close a position, don’t look at that stock’s price again. Nothing more maddening than getting stopped out or deciding to sell up 10%, then realizing that the stock increased 30% in the two weeks after you sold your shares. Hindsight is always 20/20. Don’t drive yourself crazier than the market already does 🙂 .
Awesome. Thanks for contributing, Justin!
Great advice, however, i had already quit my job for trading
Thanks Rayner, 1 questions do you have courses or a class that teaches how to be a good trader?
Hey Tekema, enrolment is closed now. But you can read a few of the books I’ve written.
Check this out… https://www.tradingwithrayner.com/menu-books/
Thank you Rayner
Very helpful tips summarized. Thanks
Awesome to hear that!
Thank you Rayner. True trading wisdom.
Nice lesson Rayner. Greed and fear of loosing led to miscalculated trading making more loses. Then emotional phase comes in creating more confusion and frustrations. Two years down the line still consider myself a beginner though strongly believes I will overcome this. Hope am not alone.
Thank you for this wonderful insight. I’ve been studying your materials for a couple of months now and recently decided to fund a live account. It’s a mixture of profits and loses. I trade synthetic (boom and crash). Please I need you to help me out by answering these 3 questions.
1. Which is the best to trade? Currency pairs or synthetic indices?
2. What works out best generally in the market e.g. Does price action has more advantage over indicators? In essence, what is the best strategy?
3. What is the best Psychology to adapt in trading?
Many thanks for the content
You are welcome, Vusi!
Learn to keep your emotions in check. I find that the hardest to do…….. It messes with your decisions. Back test….. Back test…. Back test
Do not put all your life save in trading