Skip to content

A guide to effective online trading: golden rules for every trader


My name is John Woolfitt, Director of Trading at Atlantic Capital Markets. During my time in the markets I have traded champagne bull markets, horrendous bear markets and anything in between. Throughout this time there have been a few golden rules and disciplines that I feel transcend experience, market conditions and wealth.

Whilst I can’t guarantee this  online trading guide will give you an endless string of profits, it will certainly help you through your online trading journey and more importantly help you avoid those costly mistakes. In this brief guide I wanted to highlight a couple of golden rules that every trader should be aware of.

My number one online trading mantra is “Boring profits are better than exciting losses.”

Be aware of unrealistic expectations

Warren Buffet is considered to be the greatest investor of all time. His average annual returns over the past 50 years are “only” around 20% a year, compounded. If you are targeting to make more than 20% a year for the next few years, then you are planning your financial future on the basis that you are better at investing than the greatest investor of all time.

Spoiler alert, you are not. You can still target greater than 20% a year returns, but this naturally comes with greater risk of greater losses. As part of a wider portfolio strategy, targeting returns of 20% or more in an online trading account can make sense, but you have to have an understanding of what you are taking on.

Keep score of your online trading results

At the end of any time period, weekly, monthly or yearly, your greatest loss must never be greater than your greatest gain. At the end of the period you must have a sense of your win/loss ratio, average trade size, average gain/loss. You do not play golf (or any sport) and then wonder what your score was at the end of the game, it is tracked through the game and kept as a record to be analysed afterwards; you must do the same with your positions.

Correct position sizing

Ask most amateur traders what the net result in their account would be if they placed all their funds into one position and it made 50%, then closed the position. Then they placed all their funds into another single position and it lost 50%, position closed, most would say that they would be back where they started.

But of course, this is wrong, they would be down 25%. It makes no difference if the order is reversed.

Online trading example:

£50,000 + 50% = £75,000 but £75,000 – 50% = £37,500

£50,000 – 50% = £25000 but £25000 + 50% = £37,500

The power of percentages and position sizing means that placing positions that are too large] for your account makes your account highly susceptible to loss of capital over time.

The short version of this rule is:- if you think about this position in your day to day life, or worry about it last thing at night, it is too big.

Podcast: Avoiding common trading mistakes with John Woolfitt

Run profits, cut losses, use stop loss orders

This rule may seem as fatuous as writing “eat less and exercise more if you would like to lose weight”, in that it is spectacularly simple to put in writing. The difficulty is in the doing. This is why the majority of the western population is now overweight; they know the reason, the problem is in the doing not the knowing. “Run profits and cut losses” is another equally simple thing to state in writing, but difficult to do in practise.

Be self-aware when you break this rule, as you will at some point. Be wary of the “this time is different because….” logic that you will attempt to use to give yourself the excuse to break this “simple” rule. One technique to help counter this is to decide when you place the position, when you will be wrong. Either a price point or a change in fundamental position. Decide this on the outset, and then stick to it.

Stop loss orders

With the placing of any position there will be a target expectation to the upside, and it is human nature to focus on this more so than the downside. However there is also a level that will mean the trade is no longer the trade you initially thought it was. This is where the use of stop loss orders becomes critical to your success. No one likes taking losses or triggering stop loss order’s but the reality is they are there as your safety net. The reason for this is It also means that if the share price has dropped you can come away from it and re-evaluate your position – perhaps even look for a better, lower entry point, or walk away entirely.

Stop loss orders are much like a parachute in the fact that it’s “better to have it and not need it, than need it and not have it.”

As a golden rule with any trade you must be looking to make more than you are risking. so if you feel a trade will make 10% then a 5% stop loss is appropriate. Not the other way around!

Be “critically” aware of the news

The active investor must be aware of the news flow that moves their market, however the successful trader looks behind the simple headlines and realises that once the news is in the public domain it is old news. There is a strategy to “news surf” headlines, to buy Tesla when Goldman upgrades EV stocks for example, but active traders are aware that the “real” buying has already taken place before announcements like this are made. All news like this creates is a second wave of “headline based” trading; Traders can profitably jump in and ride the wave of this news flow, as long as they are fully aware that the wave, they are surfing will often have a trough behind it and it runs the risk of a wipe out.

Be aware of your place

Too many traders act as if the market is in a relationship with them, it is not. Never attempt a revenge trade, never attempt to get back in at a level because it “should have worked last time”, never feel like the market is spooking you out of your stop level. Unless you have millions, and frankly tens of millions or even hundreds of millions in the market, what you get up to is irrelevant to the wider market -, think appropriately.

Warren Buffet is in a relationship with the markets, we are not.

Focus your attention

Particularly for those coming to the markets for the first time, focus on one market, and one general online trading approach. Most traders seem to focus on equities and technical analysis. If that describes you as well then focus on that as much as possible, while having an open mind to opportunities outside of this. There will always be something. somewhere vying for your attention, which could result in you being the jack of all trades and master of none. Pick an area, potentially quite a small area, and study that. Then quite quickly you can become an expert in it. Then from this core knowledge you can expand into other areas.

Position entry

One technique that those new to online trading can find very helpful is splitting up the trade entry points – if you have followed the rules and have decided that a position size of say £10,000 suits your portfolio, then you DO NOT enter a position of £10,000 at opening. Instead you look to build to that position over time, buying say £5,000 twice, or £2,500 four times etc. There is an extremely positive psychological benefit to this approach.

If the price moves lower from the original entry level, you are quite happy, as now you can build to your required amount at a lower average price. If the price moves up, you can still be happy as what you have bought has gone up in value. This way, psychologically, it is a win/win. Mathematically of course these outcomes are different, but you do not trade based on statistics and math anywhere near as much as you may like to think you do. So, this technique provides some very useful psychological support, that both new and experienced traders find very useful.

A word of WARNING

Never average prices like this if it was not your explicit intention from the outset. This can run the risk of you attempting to double down on losing positions and can create huge losses. This strategy should only be employed when you have followed the trading rules, and calculated correct position sizing, and then split that ‘correct’ position size into various tranche’s from the outset.

Closing your online trading positions

Another useful technique is to be used when closing positions. When it is time to close a position, but you feel a psychological reason/excuse to hang on to it, (particularly if it is out of the money), then at the very least just close some of it there and then.

If you find yourself holding back on closing the whole position, fine, but at least close some there and then. The psychological advantage to this technique is that when you do take action, then you are likely to find that you will then find it easier to close the whole position in the future. I find this technique equally as useful if a position is in profit and I am undecided if it is going to go higher., If you take half of your profit and leave some in the market then again you have the opportunity to benefit if it goes higher; yet if it pulls back you have still crystallised half your profit at the higher level.

Remember – getting in at the bottom and out at the top is near impossible without being lucky, and when it comes to investments and trading it is always better to be approximately right than exactly wrong.

About Atlantic Capital Markets

Atlantic Capital Markets is one of the very few fully regulated independent Multi Asset advisory brokers in the UK. As a privately owned and operated brokerage, we are able to stay focused on what really matters: our clients. We offer trading strategies and services relating to a range of instruments including Shares, Options and Derivatives. We provide investors of all sizes with a straightforward service, built on the foundations of a strong personal relationship. Our relationship-based service is tailored to your own personal requirements for investors who want a more traditional, reliable, personal approach to investment.

Looking for great investing ideas? Sign up to our free newsletter.

Join us on WhatsApp

This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

'How to' Guides

Our latest in-depth company reports

Detailed reviews of selected companies and investment trusts.

On the podcast

Sign up for great investing stock tips

Thanks to our Site Partners

Our partners are established, regulated businesses and we are grateful for their support.

CME Group
FP Markets

Back To Top