Following these rules are crucial to your long term success.
Rule #1 – Establish Consistent Risk.
The overarching idea to profiting from the market is to buy when price is low and sell when price is high. At face value the concept seems simple, yet it’s the top factor where inexperienced traders go wrong. We will go into great detail later in this course on exactly how to calculate your risk. The important rule to remember is that whatever you decide your risk is, make is consistent. Do it the same way every time. Make it percentage based. I recommend starting out with 1%. You can go even less if you choose, the only factor is consistency. To go along with buying low and selling high, we also want to enter when the risk of losing capital is low and sell when the risk of losing profit is high. Control you risk my using a stop loss and let that stop loss dictate your position size.
Rule #2 – Disregard External Causality
As you learned in the previous lesson it is crucially important to disregard external causality. The concept seems simple until you are deep into the trenches of a trade setup and your primal instincts kick in. This not only includes the news, but also includes common entry points for inexperienced traders. I classify them all into “lines”. Trend lines, Fibonacci retracements, Fibonacci extensions, ranges, liquidation levels, etc. A vast amount of things fall into the category of “lines.” These lines are invisible to the market. Just like the news, it may seem that the market reacts to a line and that should be a reason to enter the market. I assure you, it is not. As you will learn later in this course, structure is your entry, not some imaginary line that nobody can see.
Rule #3 – Control Your Emotion
Emotions have no place in trading. You followed rule #1 by placing a stop and accepting your risk, don’t change your mind because something else happened. Trusting your gut instead of your analysis will cause you to chase the price. When you chase, you tilt. When you tilt, you lose everything. If you get stopped out, and you will, it’s for a reason, find it. Stay focused and calm and live to trade another day.
Rule #4 – Avoid Biased Projection
Do not project your opinion onto the market. That’s not to say you shouldn’t have an opinion, you should, but you can not tell the market what to do. I promise you, it will not listen. If the market moves against you, then you are wrong. Plain and simple. The market is never wrong.