THE 10 COMMANDMENTS OF TRADING EVERY TRADER NEEDS

commandment

Really?

It should not come to us as a surprise that in every profession there are the do’s and dont’s.

Same goes for forex trading.

If you want to become a consistently profitable trader, you need to paste these commandments by the side of your dressing mirror and recite them every single day. If you don’t have a dressing mirror, memorizing them would do.

Without wasting much of your time, let’s look into these commandments.

1. Do not start trading without practicing on a DEMO ACCOUNT

This is one huge mistake most newbies make.

In a bid to make that money quick, you rush yourself into opening a real account and pay for a signal providing group…hahaha!!!

Pssssst… come here, let me tell you something.

If you value your hard earned money, I will give you a piece of advise.

Open a demo account and trade on it till you become CONSISTENTLY profitable month after month. Only then should you open a REAL ACCOUNT

After you open a real account, do so with money you can lose(change). If you still remain profitable after at least 6 months, you are free to fund the account while trading alongside.

Solution:

While most brokers operate on the traditional demo account that expires after a month.

Some brokers operate demo accounts that do not expire, Example of such brokers are:

When it comes to improving your trading skills, practicing with such brokers provide uniformity of trading results.

2. Do not go into trading if you are not passionate about it

Practicing on a demo account gives you a level of knowledge of what trading is all about and it also helps you find out if you are PASSIONATE about analyzing the market for a living. This is very important.

You see…, in a world where the career you get to pick for yourself, is most times driven by how much MONEY you make, finding passion in whatever one chooses to do is almost DEAD…Yes,

I repeat…. DEAD.

It is indeed a daunting task trying to explain myself to most new traders about being passionate in what they do, when their eyes are permanently fixed on the FINANCIAL GAINS of the business.

Now…, don’t get me wrong,

There is nothing bad with weighing the financial angle of trading on the long run. After all we all need money to survive, but seeing the profession for ONLY what you can achieve financially, tends to blind your core reason for committing to this profession.

The HARD WORK involved, both mentally and physically on your journey to becoming a profitable trader can only be stomached by those with RAW UNBRIDLED PASSION for this profession.

For those traders whose eyes are fixated on the money and how rich they would become, when the REAL HEAT starts, they run with tails in between their legs.

They lose so much money doing all the wrong things and success begins to look more or less like a mirage.

Solution:

The only remedy I know is:

Let PASSION drive you into learning how to trade, never think for once that trading is easy. It’s a tough job.

However, I can assure you that once you have become a consistently profitable trader, it is the “BEST JOB EVER”… I give you my words for it.

3. Do not trade WITHOUT a stop loss order

There are several school of thoughts propagated in the trading world which I personally don’t agree with. One of such is trading without STOP LOSS.

Those who practice such, capitalize on the fact that the market moves in cycles, and when a particular support or resistance level is broken, the market MUST re-visit that level to either bounce off it as a support or resistance or break that level to continue it’s movement.

So, my questions to such trading techniques are:

How much funds do you have in your trading account to test such moves in the market? and
What if the market moves a thousand pips off your buy/sell level and does not return anytime soon, would you still be able to trade your regular lot size, pending when the market returns?

I personally see stop loss as the sit belts in our cars. I mean, nobody wears sit belts because they expect to have a horrible accident which may end up sending them to the world beyond, albeit, we do wear them just in case the inevitable happens.

Adding a stop loss order to your trades have HUGE advantages. Some of which are:

A stop loss protects your trading capital from excessive loss when trade goes bad
It makes your trading style, REGIMENTED (You don’t have to wait for decades or centuries for a bad trade to revisit the level you bought or sold it from, in order for you to decide an exit or continue trading)
Placing a stop loss order to your trades, keeps you away from the doctors.

Oh yes, I am serious…,

You could suffer a major psychological breakdown if after you place a trade, you wake up to see you are -1000 pips against the market.

Solution:

Learn how to trade using a stop loss order at all times.

If you need assistance on this, visit our post on how to become stop loss pro.

4. Do not trade with money you cannot afford to lose

Trading on your account with money you CANNOT afford to lose is like your father in-law lending you his prized Bugatti Veron for a week.

Assuming your car is at the mechanic’s workshop, and guess what?. The new project you are handling is situated in the heart of Iyana Ipaja, Lagos.

For those who are NOT familiar with that route or location.

Iyana Ipaja is located in Lagos, Nigeria.

Iyana Ipaja is densely populated, partly because a majority part of the area is involved with commercial activities.

Now…, Danfo (public buses) drivers who ply these routes are more or less stunt drivers. In a bid to convey commuters in record time to their different destinations, they recklessly maneuver their way through.

You may count yourself lucky if you drive through that route and your car does not sustain a scratch or in worst cases, a dent

Even if you were Tureto (the main character of the FAST & FURIOUS franchise), you would still have a hard time navigating such an area with your father in-law’s car.

Its the same psychological effect that encapsulates you, when trading with money you cannot afford to lose.

The downside this has on your trading gig is an overall “diminishing returns” on your trading skills.

You begin to notice:

That it becomes more difficult exiting losing trades
You start over leveraging after losing a trade or two
You want to be in the market all day, every day, simply because you don’t want to lose trading opportunities.

The story finally end’s up like…

You, blowing up your account, not because your trading skills were not good enough, but simply because you were not psychologically ready to trade with MONEY YOU ARE NOT READY TO LOSE.

Solution:

After you have convinced yourself that you are consistently profitable on a demo account for at least 6 months.

Graduate into opening a REAL ACCOUNT with “MONEY YOU CAN AFFORD TO LOSE”. This is very key. It builds your confidence around how it feels trading with real money.

Once you have graduated from this stage, you can start funding the account while trading alongside.

5. Do not trade using a phone

Shame! Shame!! Shame!!! to those tutors or self proclaimed fx gurus who advice beginners to trade with their hand held devices.

It’s crazy.

I mean how do you trade from a 4 – 6 inches screen and become profitable.

To start with

Setups cannot be easily spotted through that size of screen
It is cumbersome trying to draw support and resistance levels accurately
You rarely get any “time off” trading, using a phone. This results to over trading

We are talking about TRADING here dude, not GAMING.

I would advice you to get a laptop, specifications do not really matter because your trading software is not heavy. What really matters is the SCREEN SIZE.

For me,

The bigger the screen, the better. Any laptop with at least above 10 inches would be great.

Don’t get me wrong…, I am not saying a 10 inches laptop is bad for trading. What I am saying is, a bigger screen for trading is always better.

Solution:

You can get ANY laptop for trading, you actually don’t need a high RAM size or processor. What you should be concerned about is the screen size. The bigger the better

6. Do not trade with a bad internet connection

This is a major problem when trading in this part of the world.

The day your service providers decides to mess you up, margin call may just be a call away, especially if you place trades without a stop loss.

You know what that means hmm?.

In my opinion,

I suggest you get at least two different internet service providers for this business, just in case one flops (which happens every once in a while), you can immediately switch to the other.

Solution:

You can purchase any good internet service provider that is around your location, I am sure you know that this varies from one state/location to another.

I would personally recommend having the network providers of your device/phone as a standby. Whenever your first choice goes down, you can easily convert your call credit to data bundle, and share with your laptop via the wifi option.

7. Do not trade all the pairs

With trading pairs numbering over 40, and new pairs being added every now and then, it has become almost impossible to categorically list all the existing trading pairs from the tip of your fingers.

Its ludicrous!

They are classified into:

Major currency pairs
Minor currency pairs and then the
Exotic currency pairs

The topic on currency pairs and how they came to be is an encyclopedia in itself. In order not to get distracted from our main focus, I would write on this topic on a later date.

However let us get one thing straight.

You cannot… or let me say…, it is easier to master how to trade few pairs, rather than trying to master too many pairs at the same time.

Most new traders get locked in a “psychological loop”, believing that trading many pairs would fetch them more money than trading just a few. This school of thought kills most new traders ambition of becoming consistently profitable.

Solution:

When starting off your trading career, ensure you practice and perfect your trading skills on one or two MAJOR CURRENCY PAIRS (GBP/USD, EUR/USD, USD/CAD, AUD/USD, NZD/USD etc).

If you have succeeded in doing so, you can move on to add a few more pairs to your trading list (If you then feel it is necessary).

Truth is, you could become VERY PROFITABLE and also live a STRESS FREE life trading just a pair or few when compared to other traders who has decided to trade so many at a time.

8. Do not over Leverage

Leverage! Leverage!! Leverage!!!

A carrot all brokers dangle right in front of every rookie, intermediate and elite trader. The sad part is only few traders see the loaded pump action rifle well hidden behind those juicy carrots.

One wrong move, and your trading account’s buttocks would be be blown into bits.

Well…, before we go any further about leveraging and its pitfalls, let’s briefly define what leveraging means in layman’s language;

In forex trading, LEVERAGE simply means, borrowing money from your brokers, in order to pull off bigger deals

Leverage is simply, your broker lending you money, so that you could take bigger trades. It’s the same practice financial institutions are involved in. They lend money to those who need it, and the borrower/lender hopefully uses the money in good investments.

Mind you, in the case of forex trading, the funds loaned to you by your broker is VIRTUAL, hence you cannot WITHDRAW or LOSE it (Smart one eyy?).

If for any reason, an over leveraged trade goes bad, you ONLY LOSE YOUR FUNDS, and pretty fast too.

However if the trade you placed, goes your way, you could become a ROCK STAR in a short period of time and that’s the catch phrase that lures wannabe traders into this profession.

So how does leveraging affects a trader you ask?

Let’s look at two separate scenarios.

Scenario 1

If a BANK gives you a loan of N100,000.00 to execute a business deal, and you have N50,000.00 as personal funds. In total you have N150,000.00

You could invest N80,000.00 on a business deal, and If it goes wrong, you would have a total amount of N70,000.00 left. N50,000.00 of your own funds and N20,000.00 of the bank’s money or vice versa

SMART GUY (I knew you were a genius).

So, in this scenario, if you wanted to invest N70,000.00(of the remaining funds), on another business deal, it would be possible. That’s the beauty of a financial institution’s loan

Let’s look at the second scenario

Scenario 2

If you open a trading account with any BROKER of your choice, you are automatically qualified to leverage your trades.

In layman’s terms, if you were given a leverage/loan of N100,000.00 to execute a business deal, and you have N50,000.00 as personal funds.

You could risk N80,000.00 on a trade, however, if it goes wrong, you would have N0.00k funds left.

Is someone shocked at this?

Well…, in actual sense you would be in a deficit of about N-30,000.00, but your broker is so nice that they cancel out your debt, so you are debt free).

The reason is simple.

The money given to you is virtual, so it cannot be WITHDRAWN or LOST in any transaction. So, a loss in the market, will be shouldered by you

The good part of scenario 2

If the trade you placed does well, and the N80,000.00 you risked, gives you awesome returns of N1,000,000.00 or less in the process.

The entire CASH (N1,000,000.00) is for you. You could decide to make withdrawals and do whatever you want with it. It’s is completely yours.

You don’t have to pay your broker the N80,000.00 you borrowed.

Cool, right?

Yes its is, if you know how to use leverage to your advantage.

Solution:

When taking any trade, always focus on “how much you are willing to lose“, rather than concentrating solely on just “how much a trade would fetch you“

When you do this, you most likely will never over expose your trading capital risk-wise, and this will greatly improve your trading results.

9. Do not revenge trade

It is easy to get lost in RAGE after losing a trade or going through a series of losses in your trades.

I perfectly understand why…

After going through the pain of meticulously analyzing the market and probably waiting for hours/days/weeks for a trade to materialize. The last thing any trader want’s to see is a streak of losses on his trading account.

The natural thing most traders would do in such a situation is REACT INSTANTLY by taking the next trade with increased LOT SIZE, to factor in:

The last trade lost and
Additional profits after covering the loss of the first trade

No need denying it buddy, I sometimes still fall into this trap.

Sometimes it pays off and your smile becomes wider than the Grinch who stole Christmas and other times it fails woefully and your trading account comes crashing down like Humpety Dumpety.

You swear by your grand mother’s grave not to do it again, but you fall over and over again like a helpless lover begging for the last kiss.

You are not alone brothers and sister, our natural instinct to react to our environment is what makes us all humans, trading is a profession that exploits that weakness in us. Albeit, there is a solution to this behavioral flaw

Solution:

Have a trading rule which stops you from trading after losing a certain percentage of your account per day.
Have other vocations other than trading that you enjoy doing when not trading

I bet you, if you practice both of these principles after a losing streak, when you come back to your charts, you will not just feel better, but you will see clearer when taking good setups for your next trade.

10. Do not allow other trader’s result distract you

In our world today, HYPE has eaten into every fabric of our society, and the chief vehicle conveying hype, is social media.

It’s no longer news seeing traders showing off their flamboyant trading results online for the purpose of marketing and inspiring new traders, I mean there is nothing wrong with it

Right?

Well, such results also has a way of leading ignorant new traders into the hands of scammers, it also has a way of making some traders feel inadequate with their trading skill.

What most discouraged traders do not get to factor in is that…,

In this era of social media hype, the pictures/trading results that trend are almost always the BEST of a MILLION SHOTS rather than the FIRST of a MILLION SHOTS.

Fillipo Saga

So how do we judge each trader’s success or performance?

Forget it dude.

Never ever compare yourself with others, especially in trading.

Don’t get me wrong, improving daily/weekly/monthly/yearly on your trading skills and goals should be paramount to every trader.

However, looking down on your growth, no matter how little it may seem, may have a huge setback on your overall growth as a trader.

Solution:

Be content with your results and always continue to strive harder each and every day to become a better trader.

In Conclusion

The main reason why most traders never make it to the pinnacle of their trading career is the fact that they keep struggling with these commandments, and what makes it worse is the fact that these blunders keep on repeating themselves in the trading career of most traders because a majority of traders are: