No matter what kind of trader you are; a swing trader, intraday trader or day trader, and no matter what you trade, from Forex, stocks to cryptocurrencies, there are certain rules you should always apply to become effective.
The goal of any trader is to minimize their losses, while extending their gains and to do that you need to manage your capital well. Here are my fundamental rules of being a solid trader, one who wins more than he loses.
1. Stick to a plan
We are intricate creatures, with emotions that can change fast. When it comes to trading, the principal emotions we are faced with include fear, excitement, adrenaline and greed. It is often these emotions that block our true potential.
This is why having a trading plan and sticking to it is critical. A trading plan is effectively the rules you will stick to – how long you will keep a position open, when you will book your profits, what kind of analysis you will use to determine your entry and exit points.
If you stick to your rules, no matter what happens in the market, you will effectively override your human inclinations to act out of fear or excitement. It’s also worth keeping a record of your trades and analyzing them, to learn how to improve and the areas you are falling short in. Excel can work really well for a trading journal, or you can find free ones online.
2. Risk Management
All forms of trading come with a level of risk, how you manage that risk can be the key to your success as a trader. The first rule here is to never trade with more than you can afford to lose.
From there, it’s important to allocate a set percentage of your overall bankroll per trade. This will keep you in the game longer and allow you to weather any choppiness the market brings.
The next rule of risk management is to set Stop Loss and Take Profit orders on the platform you are using. A Stop Loss order is set to trigger when the value of the asset you are trading sinks to a certain point, whether that be 10% lower than your entry or greater, is up to you.
A Take Profit order takes profit off the table when your asset rises to a certain point. It is often very tempting, especially with cryptocurrencies to HODL and HODL, however if you are a day trader, do not be tempted to go against your trading plan. Book your profit, cover your trade entry and then open another position if you wish to.
A really important rule, observed by all successful investors is to diversify your portfolio so that it can weather the storms. Diversification means exposing your portfolio to a variety of regions (Europe, UK, US and Emerging Markets), a variety of sectors (Green, Tech, Value and Growth), and a variety of asset classes (DeFi tokens, coins, stocks, ETFs and so on).
Another rule here is to learn how much of each asset to allocate within your portfolio. An example may be 1% Crypto, 1% DeFi Utility Tokens, 30% stocks, 10% commodities, 30% indices, 28% currencies and so on.
4. Understand what you are trading
This philosophy has been lauded by many of the most successful investors, including Warren Buffet and Benjamin Graham, the father of value investing. No matter what you are trading, you must understand it.
One strong example of this is Peter Lynch. He had a different way of finding stocks to invest in with mammoth potential. He found Dunkin Donuts, not by reading about it, but by being a customer in the store, seeing how busy it was and then checking to see that the other branches were also this busy. This turned out to be one of his top performing stocks ever.
You can’t be expert on everything, so if you want to invest in DeFi, learn about the protocols behind the tokens, what the project does, the potential and current user base. That is how you will find the next big winner. The key here is reading, reading and more reading.
5. Education is powerful
In the age of stimulus-fueled retail traders, everyone is jumping on the meme stock bandwagon. Some of them get lucky, but many of them get wiped out. You know why?
They literally have no idea how to trade. You can see that on the forums. The only way to become a trader that wins more than he loses (and by the way you only need to win around 60% of the time to make trading viable) is to live and breathe trading.
Learn the difference between fundamental and technical trading, learn what moves markets, learn the charts and to use the free trading tools that many brokers and exchanges give you.
TradingView is excellent for charts and some brokers offer you tools like TradingCentral to give you trade ideas and to explore how the market moved following past economic events. In terms of reading, personally, I love SeekingAlpha, which updates you on the market moving news, and on what’s coming up that day.
6. Signals trading
Signals are simple instructions or alerts about when to enter or exit the market. There are many good signal providers out there, you just need to find the genuine ones.
You need your signal provider to win 60% of their trades or more ideally. Some signals are generated by humans and others are generated by algorithms, both have their advantages.
To learn which package to subscribe to, check their trading history and track record. You can also backtest their signals or try them out on demo accounts to get a feel for how they really work.
7. Don’t waste time of doing tax calculations
For anyone that does their own self assessments, we feel your pain. With DeFi and crypto trading, as with all forms of trading, you have to report your earnings and assets.
We can save you a huge amount of time in that area though with our Crypto Tax Calculator and that’s the reason why we founded the company. Accountants love us due to our detailed and accurate reports.
Our platform performs tax calculations with a high degree of accuracy, and calculates complex tax scenarios including DeFi loans, DEX transactions, gas fees, leveraged trading, and staking rewards. You get a full breakdown of each calculation, so you can understand exactly how your taxes have been calculated and what rules have been applied.
I hope this guide has been really helpful for you and I wish you happy and prosperous trading!
Shane Brunette – CEO
A software engineer by trade, Shane created CryptoTaxCalculator after experiencing the pain of doing his taxes during the 2017 ICO boom. He holds a Masters in Artificial Intelligence, as well as a double degree in Psychology and Economics.