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10 Powerful Principles for Profitable Trading


Regardless of the quality of your trade entries and exits, it is the overlying principles that you use in your trading that will determine your success. Here is the big picture that will help you become a better trader starting right now.

  1. When you enter a trade, you should already have a 50/50 chance of being right on the direction after entry due to randomness. Your first job is to bring your win rate up to a higher success rate than randomness.
  2. You need to structure your trades so that your wins are big and your losses are small. A stop loss will keep your losses small, and exiting your winning trade with a trailing stop will enable you to have big wins. Big wins and small losses can make you profitable even with a 50% or less win rate.
  3. Trade a position size that you are comfortable with holding, even if it means losing money. Keep your internal emotions in check at all times.
  4. Set your stop loss far enough away from your entry so you are stopped out when you are wrong, not due to the normal range of price action.
  5. Trade inside a time frame you are comfortable with.
  6. Trade a method that matches your market beliefs.
  7. Enter only when your stop loss and your price target give you a great risk/reward ratio, where the risk is worth the reward.
  8. Exit a trade when the risk/reward begins to skew against you.
  9. Trade quantified signals that work historically, and don’t rely on anyone’s opinions or predictions.
  10. Never lose more than 1% of your trading capital if you are wrong. Your wins can be as big as you can make them.