Top 10 Rules for Winning in the Markets

Top 10 Rules for Winning in the Markets


The editorial below reflects the views of the editorial contributor only and content may be out of date. This article is sourced from a previous JUNO issue. JUNO’s content comes from sources that it considers accurate, but we do not guarantee that the content is accurate. Charts are visually indicative only. JUNO does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions.

By Sheldon Slabbert

The financial markets are dynamic, and trading can be tough. Research and a passion for trading will boost your chances of success, but some key behaviours will also give you an edge. Sheldon Slabbert shares his top 10 rules for becoming a more effective trader. 

1. Know why you’re trading

Define what it is that you want to achieve from your trading. Don’t just think in arbitrary monetary amounts – really define what successful trading will look like and what it will mean to you. This will drive you to persevere through the challenges along the road to becoming a successful trader. Those looking for easy money and quick wins will not last in this business. Trading for thrills can be fun, but it’s seldom profitable. 

2. Avoid taking tips

Tips can be dangerous. There’s a lot more to trading than buying or selling the next hot stock or currency. Tips don’t address the key aspects of self-management and trade management, which are crucial to long-term success in the markets. Not only can tips rob you of your capital over the long run, they can also take away your independence as you become solely reliant on the tipster for the silver bullet to riches.

3. Have a trade plan

Trade plans are essential to your success. Simply put, a ‘trade plan’ is a set of instructions that can help achieve a result.  It should clearly define your approach and timeframe, which should be aligned to your personality, entry and exit strategy, and, importantly, capital allocation. 

Start with the basics – although it’s acceptable to cherry-pick from others, it’s important that you adapt the plan and make it your own. 

4. Be Selectively active

The greatest advantage for non-institutional and retail traders is that they can choose when to trade, as they do not have to be in the markets all the time. The ‘need to be in’ is an impulsive tendency among losing traders. Professionals know when to trade if the probabilities favour them – and only then. Loss of opportunity is better than a loss of capital. Of course, certain traders can be much more active than others, but this is usually by design and not impulse. 

5. The market knows best

The markets are always right. Prices can move for seemingly irrational reasons and continue to do so for longer than many may thought possible. Countless numbers of traders have suffered huge losses by picking tops or bottoms of the markets prematurely. As the great Jesse Livermore said: “Never argue with the tape. Markets are never wrong, but opinions often are.”

6. Know when to take a loss and move on

To add to a trade that has never shown a profit has rarely benefited a trader over the long run. The market is telling you, through price action, that it is not agreeing with you yet – and it may never. 

Averaging for a ‘better’ price increases the risk of loss, as the probabilities of gain may have deteriorated, indicated by a running loss on the initial trade. As the reasons for being in the trade are dwindling, the trader should review their initial entry and possibly look for a way out, rather than digging in their heels.  Professionals accept that losses are part of the process
– and take them when they have lost the reasons for being in the trade.

7. Stay in control

Trading is about control. Control over self and control over risk are crucial facets of a successful trader. The biggest challenge most traders face isn’t with the markets or their trading systems. It’s with themselves and how they’re able to control their emotions and thinking throughout the trading process. Many traders suffer losses or even ruin because they’re unable to discipline themselves to follow their trade plans. Losing traders often have difficulty controlling their emotions and can react adversely to a string of wins or a run of losing trades. 

What’s more, risking too large a percentage of your capital or not having defined stops in place inevitably hands control over to the market, leaving your account vulnerable to its whims. 

8. Put risk at the forefront of your thinking 

Professional traders consider risk first, which may make them less impulsive. On the other hand, most losing traders consider the possible gains first, which often feeds their impulses, making them jump in and neglect their trading rules. Professional traders always consider the ‘what-ifs’ before getting in and have a plan should the unexpected happen today.  

It’s also important to assess how much to allocate to each trade. The amounts are mostly the same and compound over time, but on occasions when the probabilities favour them they will increase in size – big enough to make a difference to the account but not big enough to lead to ruin. Therefore, trade selection and capital allocation are crucial.

9. Be flexible and do away with the ego

Trading is often a counter-intuitive discipline, with no room for egos. You must have defined trade plans and approaches. However, the great traders, such as Jim Rodgers and Stanley Druckenmiller, are willing to get out or even flip their positions, should the evidence and price action tell them that their current reasoning is wrong.

10. Practise like you want to perform

True perfection is not really the point, but perfect practice is. Great athletes are training, singers are singing, and chefs are cooking. You too must work on your craft. Pop-psychology writer Malcolm Gladwell says that it takes roughly 10,000 hours of practice to achieve mastery in a field. These same principles apply to acquiring the skill of trading. Many software packages out there will help you do this – make it real, review your performance, and make the adjustments. Prevent catastrophic failures and achieve your goals by applying what you’ve learned.  

Billionaire trader Paul Tudor Jones once said: “Trading gives you an incredibly intense feeling of what life is all about.” 

Understanding the importance of these top 10 rules will not only help you become a more refined trader, but can also increase your chances of profitability in highly competitive markets.