4/23/24, 4:58 PM Golden rules of trading

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Dave Vivek
My Risk Mentor Follow

Golden rules of trading

EDUCATION | 12/05/2023 13:27:36 GMT

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Traders should take steps, prior to embarking on every trade, to limit the impact that an
unprofitable trade could have on their capital.

Protect your capital

Traders should take steps, prior to embarking on every trade, to limit the impact that an
unprofitable trade could have on their capital. For any trader their capital is their life blood
and therefore should be protected as a priority. Without it they are not only unable to make
money but are unable to trade. Therefore limiting risk, even if this means elongating the
time taken to achieve ones targets, is a must. The key tools that can be used to do this are
Stop Losses and Limiting Exposure.

Stop losses should always be used and never moved away from the market A stop loss
should always be used and just as importantly should be used correctly. The golden rule of
Stop Losses is that they should never be moved away from the market once the trade is
opened. If a trader feels that their stop loss is incorrectly placed, they are recognising that
the foundations of their trade are incorrect and therefore they should close out. The best
way to place a stop loss is to take the mindset of ‘If this stop loss is touched, I have judged
the market wrongly and I should close out’. Once closed out, the trader can always re-
evaluate the situation and go back into the market if the market conditions are favourable.

Limit exposure
Limiting exposure simply means limit the percentage of your capital that is exposed both to
one sector and to the market as a whole at any one time. This will usually mean limiting

your exposure to approximately 5% of capital. The theory behind this is that, should the
market go against you in all your positions on the same day, you will still be able to trade in
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4/23/24, 4:58 PM Golden rules of trading

Never average down

Every trade should have a well thought out structure in regards to entry and exit. A trader
should never average down. Averaging down is a method used to try and double up on a
losing position in an effort to lower the average entry price obtained during a losing move.

This is not the same as averaging in, which involves entering the market slightly early with
half of the position size in order to take ensure that ,should the market bounce prematurely,
the trading opportunity is not lost.

Let profits run and cut losses short Stop losses should never be moved away from the
market. Be disciplined with yourself, when your stop loss level is touched, get out. If a trade
is proving profitable, don’t be afraid to track the market. Theoretically a trade should never
be simply closed out manually; it should always be closed out by a stop loss. This allows
the trader to lock in profit but never prevent further profit from being made.

Employ a risk reward ratio

The use of a minimum risk: reward ratio when planning a trade is imperative. The actual
ratio that traders use will vary depending on their experience. A typical Risk: Reward ratio
that a trader might look for when assessing a trade is 1:3 or £/$ 1 of potential loss in the
trade for every £/$ 3 of potential profit. Even if you are trading on a moving average
crossover or another imprecise method, you should still be aware of what your potential
losses are and what your potential reward could be.

Never stop learning

MENU
A trader should never stop learning. As the markets are dynamic and are constantly
 evolving, any trader that becomes stagnant will eventually start to lose money. 

Never trade scared

Trading scared or undercapitalised is one of the leading causes of unnecessary losses.
Emotions such as greed and fear often cause errors in judgement and are always present
however they are heightened when trading under pressure.

Don’t be afraid to go home

No trader should ever be hesitant to stop trading and if necessary walk away for the day. A

morning losing streak is more often than not compounded by the trader that continues to
trade. By walking away, you are not being lazy, but being mindful of the fact that something
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4/23/24, 4:58 PM Golden rules of trading

is wrong that day and that you are not in tune with the markets. Walking away is nothing to
be ashamed of. Come back fresh the next day.

Plan your trade and trade your plan

All trades should be planned with risk, reward and capital allowances taken into account.
Any trade that is taken on the fly is nothing more than a gamble.

Don’t look too hard for your trades, wait for the good ones to come to
you
There are so many markets to trade that there are endless supplies of really good quality
high probability trades. If you are looking too hard for trades, you will end up moving into
positions which you have falsely convinced yourself are high probability trades. The better
a trade, the more it will jump out of the charts at you.

Every loss is a learning opportunity, take time out to take advantage of

it
Every loss making trade is a learning opportunity. By definition, if you have made a loss, you
have misjudged the market. Therefore to move on to the next trade without fully reviewing
the last will only increase the likelihood that you will repeat the mistake.

Don’t trade blindly from others trade ideas

Traders new to the markets frequently place trades based on others recommendations. Any
trading activity should always be researched in depth. Not doing so will prevent the trader
from being able to react to any changes in the market during the life of a trade. Remember
positive information being released about the market can still have a detrimental effect on
price and anything that you read in the papers is old news, as professional traders will have
heard about it and reacted accordingly the previous day.

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All information on this website and hosted events are only for educational purposes and are not intended to provide financial advice.
Any statements about profits or income, expressed or implied, do not represent a guarantee. Your actual trading may result in losses as
no trading system is guaranteed. You accept full responsibilities for your own actions, trades, profit or loss, and agree to hold the
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4/23/24, 4:58 PM Golden rules of trading

EDITORS’ PICKS

EUR/USD rises toward 1.0700 after Germany and EU PMI data

EUR/USD gains traction and rises toward 1.0700 in the European session on Monday. HCOB Composite
PMI data from Germany and the Eurozone came in better than expected, providing a boost to the Euro.
Focus shifts US PMI readings.

GBP/USD regains 1.2350 ahead of UK PMIs

GBP/USD is recovering ground above 1.2350 in the European session, as the US Dollar comes under fresh
selling pressure on improving risk sentiment. The further upside in the pair could be capped, as traders
await the UK PMI reports for fresh trading impetus.

Gold price flirts with $2,300 amid receding safe-haven demand, reduced Fed rate cut bets
Gold price (XAU/USD) remains under heavy selling pressure for the second straight day on Tuesday and
languishes near its lowest level in over two weeks, around the $2,300 mark heading into the European
session.

PENDLE price soars 10% after Arthur Hayes’ optimism on Pendle derivative exchange
Pendle is among the top performers in the cryptocurrency market today, posting double-digit gains. Its
peers in the altcoin space are not as forthcoming even as the market enjoys bullish sentiment inspired by
Bitcoin price.

US S&P Global PMIs Preview: Economic expansion set to keep momentum in April
S&P Global Manufacturing PMI and Services PMI are both expected to come in at 52 in April’s flash
estimate, highlighting an ongoing expansion in the private sector’s economic activity.

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