The #1 Rule of Trading in 2018

Posted by TopstepTrader on January 02, 2018

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It’s a New Year - and there’s definite excitement here about the potential for trading markets in 2018. The second half of 2017 certainly provided some opportunities. Gold first hit a new yearly high before falling more than $100 - then rallying back at the end of the year. The U.S. Dollar’s downtrend continued and accelerated in the final weeks of 2017. And Crude Oil gained above $60 per barrel on the final trading day of the year.

But - all that means nothing if you ignore the number one rule of trading: Always ensure you can trade tomorrow. The moves of today mean nothing if you burn through your capital and can’t capitalize on opportunities tomorrow. Here’s why.


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Warren Buffett says the number one rule is “Don’t lose money.” With all due respect to Mr. Buffett, that’s not possible. In investing and trading, you are going to lose money. Period. In fact, the best traders can profit but still make money on fewer than 50% of their trades. Long-term investors like Mr. Buffett will have a much higher hit rate - but that will never be 100%.

In fact, it’s the idea “Don’t lose money” that keeps many traders in positions too long and causes them to bust their accounts. Sometimes they’ll even adjust their stops in the heat of a trade - hoping that a bad trade will turn around. Hope is not a trading strategy.

Instead, the most important thing for traders - day traders or swing traders - is to ensure that they always trade for tomorrow.

If 2017 taught us anything, it’s that opportunities in the market will always be present. If you don’t have the capital available to take advantage, then you will be on the sidelines - watching.

That’s why at TopstepTrader, we support having Daily and Weekly Loss Limits. At some point, you have to admit that you are not reading the market right. Smart traders will close out their positions - and re-enter the market tomorrow or next week with a clear head.

If you are in a hole trading, could you dig yourself out? Yes. In fact, you probably have done it in the past. But with what likelihood? You certainly remember the time you were down $1,000 and then ended up making $1,000 on the day. But do you remember how many days you were down $500 and let that slip to $1,500?

So if you find yourself in that position - remind yourself that the most important trades you will make are in your future. Your best trades are ahead of you. Always trade for tomorrow.

If you have any questions or feedback, please leave it in the comments. 

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Topics: Trading Basics, Trading Lessons, Trading Psychology