The Rules of Successful Traders

Through the interviews with hundreds of profitable traders over the past few years, we have noticed a pattern. Listening to them talking about their technique for surviving in markets, we have concluded a lot of similarities about how to grasp each trade. When we hear some traders who have made over $200,000 a year say the same thing, we will listen to them. We've established a list of 20 rules that are common for almost every rich trader to whom we've spoken.

Some of these rules have already been familiar to you, while others might make you surprised. We hope you will find at least one or two rules that you can add into your own trading strategy in order to earn more money, in a more consistent way.

1. Successful traders are patient with their winning positions and very impatient with their losing positions.

This first rule directly comes from Dennis Gartman (thegartmanletter.com). A lot of traders are very anxious about their winning positions because they don't want them to turn into a loss. This is a good thing, unless this impatience forces them to exit too early from their winning positions and leave money in the market.

On the other hand, how many times have we said to ourselves: “I'm going to let this loss run a little longer to see if it ever turns around”. In this case, you have been patient with a losing position and impatient with the winning position.

Profitable traders reverse this thinking and do exactly the opposite. When they have an investment that is going well and positive, they stay patient to see how far it can go. When they have an investment going in the wrong direction, they exit immediately to limit the loss and start looking for new opportunities.

If you have set a stop loss, you should never move it in the hope that the situation would change and the position could become profitable because this is rarely the case and it will only make your loss of the day worse. To start by becoming patient with your wins and impatient with your losses is the first step in joining the circle of winning traders.

2. Profitable traders know that making money is more important than being right.

It's human nature to hope market assumptions and forecasts correct. We want to believe that we are interpreting well the market data and that we have made the right decision to go long or short. However, good traders rarely have a bias before opening a position in the market.

When deciding to make an investment, if the position turns into a loss, indicating that they were wrong from the start, they wont have any worry to take immediately a position in the opposite direction. We have interviewed some successful traders who establish a bias in the morning and will only place orders in that direction during the daytime, but they are rare. Rather than trying to force their opinion on markets and being determined to prove themselves right, good traders will change their direction at the time when the market tells them that they should do so, even if they were convinced that the market would go in an opposite direction on this day.

Instead of being right, the most important thing is to earn money and the value of ones capital.

3. Profitable traders see, in the technical analysis, the indicator of where traders line up to buy or sell.

Many traders regard the moving averages, the Fibonacci ratios, and the trend lines as exact places where the price is supposed to turn and go in the opposite direction. Good traders don't see technical analysis in this way. They see the charts as the snapshots of when traders will line up to buy and sell.

Instead of seeing candlesticks, lines, or clouds, successful traders see prices where traders placed their entry and exit order in the market, along with their stop loss and entry point. Neither stocks, options, nor futures have an idea where it is going to find support or resistance. It is the market players who determine this. Good traders know this and place their own orders around these levels to take advantage of the other 95% of traders who will lose money.

4. Even before initiating a position, they know where they will exit and whether it is for a loss or a profit.

We have all heard that we need to place stops every time we enter the market in order to avoid too much loss. However, very few traders really know where they should place their stop and what their profit target is before entering a position. Good traders won't trade by chance but plan each order in its totality before entering a position.

Your written trading plan should have objective measurements for knowing where the stop loss should be placed and where we should take our profits. Not knowing or simply trying to guess where prices will be after entering a position can lead to indecision or price targets out of the safe average of their trading. Why set an arbitrary profit target of 3 points when the market average is only 2 points？ In addition, good traders establish position sizes and stop losses which depend almost always on their risk tolerance for each order.

For example, if the maximum risk of each order is 2% of their trading capital, the number of shares they will trade (depended on the share price) and the reasonable stop loss will all be calculated before the order is initiated. Its rare to find a good trader with a position size of 1,000 stocks. They generally respond that it depends entirely on what they are going to do. They take their maximum acceptable loss and work upstream to find a stop loss and a position size that matches this objective measurement.

(Source: www.abcbourse.com/analyses/chronique-les_regles_des_traders_a_succes_1ere_partie-946)