Do not lose money, trading rule number 1

27 9 2014 - No comment

Trading rule number 1: do not lose money

People often smile when I say that my rule number 1 is not to lose money in the stock market. Often on the stock market forum of my blog, I have traders dissatisfied at the end of the day because they won only a few Euros whereas “If… “. I often answer: “A day without a loss is a great day.” This may sound simplistic but it’s by reversing my priority in the stock market that I became a winner.

Losses in the stock market are more important than profits

Formerly, I traded in the stock market to earn money; a purchase was programmed with the intention of getting a profit or a more or less calculated loss. I was in full force, I was looking for quick and easy profits, I hardly envisaged possible losses because I was convinced of my analysis. Now, I do (am) the contrary; I live in a state of perpetual doubt, I am no longer certain about the direction of the market (the market has put me in my place enough to teach me that certainty in the stock market is the royal voice of great disappointments). I therefore first of all calculate any possible loss, I take a position while always being the most pessimistic, I consider loss as a fact and profit as a possibility.

Trading is not a game

Acting in this way changes your vision of trading: trading is no longer a game, it becomes a risk. Your positions will be mechanically much more secure because you will trade with a view to reducing risk. Your trading will be more ‘clean’ andmore efficient, less enjoyable of course, but you need to know whether you are trading to earn money or to have emotions… (broad topic).

 Imagine the worst in trading

From the moment you are in this state of mind, permanent doubt will always make you imagine the worst case scenario; the black days that plunge your annual results are greatly reduced and you are able to avoid them. In my case, I had about 5 to 6 days per year which ruined my profits; weeks of work reduced to nothing in a few hours, sometimes. This rule number 1, the golden rule, “Do not lose money” allows me to limit or even eliminate to a large extent most of these black days. I invite you to apply this principle to your latest years of trading. Find those days or those trades, analyse them and find a way to block or to reduce them. In my case, it was my big ego : I was right, my analysis was correct, the market will prove me right when dealers will reflect … so I doubled, tripled my positions, a destructive pyramiding … as if my modest lots had the least impact. I did not want to accept my fragility, the fact that I am nothing in the stock market, that what I think is of no consequence and that finally the stock market is not about being right or wrong; it is just trying to take advantage of a flow we will never master.

 A day without losing is a great day in the stock exchange

A day without losing is a great day in the stock market. Capital is preserved, we have tried things, we have gained experience … and we are fully operational for tomorrow. And the profit? As Lacan would say, it will come as a bonus; the priority is not to lose in order to win in the end.

List of my 10 personal trading rules:

1) Do not lose money, trading rule number 1

2) Trading rule number 2, reread rule number 1

3) Always have a backup solution, trading rule number 3

4) Only trade when in top form, trading rule number 4

5) Think for yourself, trading rule number 5

6) Control your losses, trading rule number 6

7) Do not force yourself to trade, trading rule number 7

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