The 10 Lessons New Traders Need for Market Survival

“The elements of good trading are: 1. Cutting losses, 2. Cutting losses, and 3. Cutting losses. If you can follow these three rules, you may have a chance” -Ed Seykota

If a new trader comes into the markets with dollar signs in their eyes with nothing but excitement for how much they can make and no understanding of how much they can lose the odds are they will not survive their first year of trading. It is said that nine out of ten do not survive that first year. These nine blow out their accounts and distribute their money into the winners accounts and go pursue other interests believing trading is not for them. The big secret is that trading is not about being rich it is about survival first, profits second. Now new traders can read this blog and take these lessons to heart or scoff at it and go out and learn these lessons the hard way. These lessons were learned by either me learning them by losing thousands of dollars, watching someone else lose their money, hearing the stories of pain, or in the hundreds of books I have read about traders, trading, and the markets. I hope this blog post saves one trader from the anguish of blowing out their account, if so I have done my job.

  1. No matter how much you believe in a trade never risk more than 1%-2% of your total trading capital on it. If you risk more than this your eventual risk of ruin is almost 100% your first long string of losses will also be your last because your account will not survive it.

  2. Never fight the prevalent trend in the market until it reverses. Shorting in up trends and going long in down trends is a great way to lose your trading account.

  3. Never use leverage that you do not understand. Before you use margin or trade options, futures, currencies, or commodities you must first fully educate yourself on the risks when you lose not just the rewards if you win.

  4. Get the term “Playing with the houses money” out of your vocabulary, I believe all my profits are mine and I fight to keep them just as much as I do with my original capital. many traders have the problem of becoming reckless with profits and take on greater risks feeling emotionally detached from them like they are monopoly money, this is a sure way to lose money, all money in your account is yours until you lose it.

  5. Do not believe you are going to walk in the market and win with out first doing the homework and learning hard lessons with real losses. When trading you are entering a realm of professionals that want to take your money. If you are not as good as the top 10% of traders then you will lose money in the long run. If you do not have the work ethic to read ten of the best trading books, be mentored by winning traders in some way, study charts until you understand how prices flow, or put in the hours each week in your trading then you simply will not make it.

  6. Do not trade low volume and illiquid markets where  the bid/ask spread will eat up your account. Only trade markets that have tight bid/ask spreads as a percentage of the instruments price.

  7. Hold your opinions very lightly, be willing to accept you are wrong and reverse your position or stop out when price movement says you are incorrect, this separates the winners from the losers. Winners want to make money losers want to prove they are right.

  8. New traders must have the discipline to create a trading plan in the off hours and follow it during open market hours. The inability to merge your off hours analyst self with your active trading self will eventually ruin you.

  9. No one thing will determine your success in the markets more than your own level of perseverance. If you are heading in the right direction you will eventually win if you do not quit. If you quit there is a 100% chance you will not win.

  10. Do not search and ask for tips and opinions instead search for your own robust method that has an edge. Do not ask for fish, learn how to build a fishing pole and fish. When we trade the method that fits us that has an edge then time is on our side and we know what to do. Do not trade a method that sends your heart pounding and stress levels rising, instead trade inside your own comfort zone and grow into bigger position sizes and added risk over time.