Trading Rule Number 1: How to Avoid Losing Money

Trading rule number 1: do not lose money

It often makes people smile when I tell them that my number 1 rule is not to lose money in financial markets. On my blog’s trading forum I often hear from traders who are dissatisfied at the end of the day because they have only earned a few euros whereas “if… “. I usually reply: “A day without loss is a good day”. It may seem simplistic, but I became a winner by reversing my priority in the financial markets.

There are more losses than gains in financial markets

I used to trade on financial markets to earn money, a purchase was planned with a view to gain and a loss was, more or less, calculated. I was all-powerful, I was looking for a quick, easy profit, I didn’t think much about possible losses because I was convinced of my analysis. Now, I do (am) the opposite, I live in a state of perpetual doubt, I am no longer certain about the market’s direction (the market has put me in my place often enough to teach me that certainty on financial markets is a sure path to setbacks). Therefore, I calculate any possible loss first, I always take the most pessimistic position possible, I consider loss as a fact and profit as a possibility.

 Trading is not a game

By proceeding like this your whole view of trading changes: trading is no longer a game, it becomes a risk. Your positions are then mechanically much more secure because you are trading from the viewpoint of risk reduction. Your trading will be “cleaner” and more efficient, less enjoyable certainly, but you must realise that you are trading to make money and not to have feelings… (This is a 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 5 or 6 days a year which wiped out my earnings; weeks of work reduced to nothing, sometimes in a few hours. This first rule, the golden rule, “Do not lose money” enables me to limit or even to eradicate the black days to a large extent. I urge you to apply this principle to your last few trading years. Find those black days or trades, analyse them and find a solution to try to reduce them. In my case, it was my oversized ego : I was right, my analysis was correct, the market will prove me right when the stakeholders think about it … so I doubled, tripled my positions, a destructive pyramiding … as if my modest lots had the slightest impact.  I did not want to accept my weakness, the fact that I am nothing in the stock market, that what I think is of no consequence and that ultimately the stock market is not about being right or wrong; it is just trying to take advantage of a flow you can never control.

 A day without loss is a good day on the stock market

A day without loss is a wonderful day on the stock market, capital is maintained, you have tried things, you have gained experience… and you are fully operational for the next day. And the profit? As Lacan said, it comes as a bonus, the priority is not to lose, to win in the end.

List of my personal trading rules:

1) Trading rule number 1: do not lose money

2) Trading rule number 2: reread rule number 1

3) Trading rule number 3: always have a backup plan

4) Trading rule number 4: only trade when you are on top form

5) Trading rule number 5: think for yourself

6) Trading rule number 6: check your losses

7) Trading rule number 7: don’t force yourself to trade

8) Trading rule number 8: don’t stick to conventional trading rules