Top 10 Rules for Successful Trading

Last Updated August 27th 2021
7 Min Read

Although all businesses are risky, trading is one of the riskiest businesses, especially if you enter into it without ample preparation and diligence. Several people take to trading with the hope of making some quick profits and end up losing more than they could afford to. However, it doesn’t mean trading cannot be profitable. On the contrary, with a bit of preparation and planning, almost anyone can become a successful trader.

If you are among those who would love some tips on successful trading, you’ve come to the right place. Here are the top 10 rules of successful trading to help you get on track to earn some profits as you’ve always wanted. Before we start, however, remember that each of these rules is important and together they make an effective plan towards achieving your goal. With these rules, the odds are more likely to be in your favour.

Points to remember:

  • Never consider trading as a hobby or job – treat it as a business
  • Learn as much as you can about the trading business.
  • Set realistic goals for your business.

Let’s now get going and see what the rules to successful trading are.

Top 10 Rules for Successful Trading:

1. Always use a trading plan

A trading plan is nothing but a written set of rules that lay out the entry, exit, and money management criteria for every purchase undertaken by a trader. Thanks to technology, you can easily test a trading idea before you put actual money into the market and start trading. Backtesting is a common practice used to apply your trading plans and ideas using historical data to determine if it is viable. You can backrest and fine-tune your trading plan and once you are convinced that the results are good, you can start using it in real trading scenarios.

However, despite all your backtesting and planning, sometimes the trading plan might not work. In such a situation, you should bail out and start over. The key here is to stick to the plan once you start to trade, even if it results in a loss. Taking trades outside the plan is not a good strategy, even if it results in a win.

2. Treat trading like a business

If you wish to be a successful trader, you should consider trading as a full or part-time business, and never as a hobby or a job. This is because if you consider it as a hobby, you will not be committed to it. Further, if it is considered as a job, you’ll be frustrated when you don’t earn regular income or when things don’t go the way you want them to.

When you consider trading as a business, you automatically prepare yourself for the various expenses, probable losses, taxes, uncertainty, stress, and risk, among others. For all practical purposes, a trader is a small business owner who should research and strategise to maximise the business's potential.

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3. Take advantage of technology

Trading is highly competitive. The trader on the other side is likely taking full advantage of all of the latest technology available for trading. You should never shy away from taking advantage of technologies such as charting platforms that give you endless ways to view and analyse the markets. As mentioned elsewhere, backtesting uses historical data to prevent costly mistakes. You can also get market updates via smartphone. It will help you to monitor trades anywhere. Furthermore, even common, everyday technologies such as a high-speed internet connection, can make a huge difference to your trading performance. So, always make sure you use technology to your advantage, and keep up with the newer products and discover the joys of trading.

4. Safeguard your trading capital

It is not easy to save enough money to fund a trading account. You have to put in a great deal of time and effort. Obviously, it would be wise not to do it more than once. You can ensure that by protecting your trading capital. However, protecting capital doesn’t mean not experiencing a trade loss ever. There is seldom a trader that hasn’t experienced trade losses. Protecting capital merely means staying away from taking unnecessary risks and taking every step to preserve your trading business.

5. Study the markets

Trading is a form of continuous education. Traders have to focus on learning more each day. As a trader, you must remember that understanding the markets and their intricacies, is an ongoing process.

It is important to research and learn about the market continuously. With focus and observation, you can sharpen your instincts and learn the nuances. The market is influenced by several factors such as world politics, news events, economic trends, and even the weather. The more you understand them along with the past and current markets, the better prepared you are for the future.

6. Don’t risk more than you can afford to lose

One of the most important trading rules is that you should never risk more than you can afford to lose, no matter how lucrative the returns might seem. You must ensure that all the money you put into trading is truly expendable. If it's not, you should keep saving until it is.

You must use only those funds earmarked for trading. Never trade using your child’s college fund or the money you kept aside for paying off the mortgage. When you are a trader, you just can’t borrow money from your other personal funds. Borrowing money from your other funds is not the right way to trade.

Losing money in a trade can be traumatic. It can be devastating if you’ve lost the capital that should have never been risked in the first place.

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7. Develop a fact-based methodology

Successful trading takes time and effort. You must take the time to develop a sound trading methodology. Anything that seems too easy is unlikely to be worth your while. Use facts, not emotions or feelings to guide your decisions. There is no get quick rich formula in trading.

Set aside time to learn and grow. There will be several opportunities for you to earn profits and attain success. Always remember that trading cannot make you rich overnight. However, if you are not careful and logical, you might become bankrupt overnight.

8. Always use a stop loss

A stop-loss is one of the most useful tools in trading. It is a predetermined amount of risk that you can afford or are willing to accept with each trade. The stop loss can be a specific amount or a percentage. Either way, it limits your risk exposure during a trade. Using a stop loss will take some stress off trading as you know that no matter what happens, you’ll lose only ‘X’ amount on any given trade.

Even when you are in a winning trade, you must have a stop loss in place. Exiting with a stop loss is still a winning trade because it stops you from losing badly. Using a protective stop-loss limits your risk and losses. Exiting with a stop loss is better than being forced to exit on loss.

9. Know when to stop trading

It is important to know that there are two main reasons to stop trading:

  • an ineffective trading plan
  • an ineffective trader.

If you have an ineffective trading plan, you’ll end up with much greater losses than anticipated in historical testing. Even though you wouldn’t like it to happen, the truth is that despite all your efforts, it will happen sometimes. Markets change, and at times the trading plan will not work for whatever reason.

When such a thing happens, you must remain logical and business-like. Consider it as a time to re-evaluate your trading plan and fine-tune it. You can make a few changes or start over with a new trading plan. An ineffective or unsuccessful trading plan is not the end of the business.

An ineffective trader is unable to follow his trading plan. Factors such as external stress, poor habits, lack of willpower, lack of physical activity and more, all contribute to this problem. If you are stressed and not at the best of your ability, you should take a break from trading. If not, you are prone to take wrong decisions and suffer even more. Use the break to address the shortcomings and once they are solved, you can get back to trading.

10. Keep trading in perspective

As a trader, you must always stay focused on the big picture while trading. If so, you’ll not be surprised by a losing trade. You’ll know it is all part of trading. A winning trade is just a single step towards successful trading as it is the cumulative profits that make a difference in the end.

If you accept wins and losses as two sides of the same coin, you’ll find it easy to deal with them. You will be able to think logically, without the interference of emotions and feelings. It doesn’t mean you should not be excited by a successful trade, but you should be mindful that the next trade could end up in a loss.

Setting realistic goals and expecting reasonable results is essential to keep trading in perspective. You will get results in due course – never expect an overnight success; if you do so, you’ll be setting up your own failure.


These rules are great pointers and together they can help you establish a strong and successful trading business. However, as mentioned earlier, successful trading requires hard work, discipline, patience, and time. If you invest in all these and play by the rules laid out above, you can be assured of success.

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