Current conditions in the stock market have encouraged a significant increase in the number of individuals who actively trade in stock accounts. The major stock indices are at or near all-time highs following a long period of sustained rises, but, more importantly, financial news sites are full of stories of “mini meme stocks” that have shown returns in the hundreds of percentage points over short time periods. That leaves many people believing that they are missing out on an easy opportunity to make a lot of money. The evidence, however, suggests that trading in your account is anything but easy.

The exact percentage of retail traders that fail is hard to know, but studies show that anywhere between seventy and ninety percent of the time, day traders lose money in any given period. The obvious advice to give, therefore, is not to do it at all, but many still will. And for those that do, following three simple rules will increase the chances of surviving long enough to learn the often very expensive lessons that will set you up for long-term success.

Rule # 1: Have a Strategy: It is important to have a plan going into a trade. No matter how good your analysis and how rational you usually are, once you open a position and your money is at stake, the stress does strange things to your way of thinking. Taking a loss becomes harder, and taking even a tiny profit looks very attractive. If you give in to that, your losses are always much bigger than your profits, and simple logic dictates that that is not a recipe for success.

Logical, unbiased analysis is much easier before you have money at stake. It is therefore far better to set a strategy for each trade going in. A simple bracket with a stop loss and a profit target can be easily set at the time of executing a trade on most platforms and gives you a framework from which to run a position.

The key is to focus on exits rather than entries. No matter how strongly you may feel about something, don’t enter a trade unless the chart suggests at least a logical stop-loss level that is close enough to result in a manageable loss should things go wrong. It is, of course, not just enough to set a logical stop and profit level, you also have to stick to them, and that leads us to rule number two…

Rule # 2: Never Average a Loser: When I started out in a forex dealing room back in the 80s, my first boss told me early that “Only losers average losers”. When you set your initial stop-loss order it should be based on a level that is likely to provide support, but the problem with that is that when you are losing money and you get to that level, it is easy to convince yourself that rather than being a level that, if broken, demands that you cut your losses you see it as a good opportunity to buy some more and improve your average.