24 Most Important Rules of Trading 1. Always Cut your losses and let your profits run. Take small losses and large wins. 2. Once you have defined the trend, trade only in that direction. 3. Always have a game plane. Never enter a trade unless you know where you should get in and where you should get out. 4. Always use a protective stop to limit your losses. 5. Be patient. Wait for the right opportunities. Don't just trade for the sake of trading. 6. If the reason you entered the trade is no longer there, get out. 7. Do your homework. By the time you enter a trade you should already know what you are going to do and what you expect from the trade. Placing a trade should be the easiest part of trading. If you are still trying to work things out when you enter the trade you are not ready for that trade. 8. If your method of trading is working, don't change it. 9. The market is never too high to buy or to low to sell. 10. Every trader has losses, don't let your losses get to you psychologically. 11. There is no such thing as an indicator that is a 100% right all the time. Use common sense along with your method of trading. If your indicators are telling you one thing but the market is obviously doing something else, listen to the market. 12. The market is always right. 13. Use money management in your trading. 14. Only trade markets you are sufficiently capitalized for. 15. Never trade with money you cannot afford to lose. 16. Be disciplined. 17. If you hit your target profit, take it. Don't get greedy and hope that you will make more. 18. Don't try and regain all your losses in one trade. 19. Don't blindly follow someone else's recommendations. Do your own homework. 20. If it's not going well, take a break for a few days or weeks. Make sure you are in the right psychological frame of mind before you start trading again. 21. Don't trade to many markets. It's better to be an expert in one market than a novice in many. 22. Never meet a margin call. If you have a margin call it means something went wrong with your trade. 23. By the time everyone knows it's a bull or bear market, it's probably to late. 24. Losses in trading have no bearing on you as a person.
if that were true. couldn't you just paper trade until you have a winner then 'add' to it by putting on real positions? maybe it should be add to winners when you have reason to, above the fact it has moved in your direction in the past. and add to your losers if you have reasons to, same as above. if this isn't true then simple linear trends (same as having a profitable / losing position) would be a useful edge. i assume decisions to trade when having a position on should be the same as decisions to trade when not having positions on. with the exception of money, risk and margin management factors.
that is, you assume you "know" when to cut your loss. i.e. you know your "small" profit will add to large profit by letting it "run". and you know that by letting a small profit run, you won't let it become a small loss. many small losses can also bankrupt you. I know people who trade ES with a 15pt stop loss. They are making money. I also know people who take 1~2 tick profit on ES. They are also making money. Many rules are fantastic on paper. You have nice ideas.
Good rules but #17 I differ on. When you have reached your profit target don't always close your position. At that point use a trailing stop. It is very hard to sometimes tell when the move will end and a trailing stop can once in a while will give you that huge move that is not expected. I generally don't sell I just let my trailing stop take me out.
That was actually a great post. It may not sound like much, but reading it, I can appreciate many of the rules first hand! I know that those rules came with much blood sweat and losses to finally come up with some solid ground rules!
if your just paper trading, then decide to add some 'real shares' your just initiating a position late - your base position is only a paper trade so your average cost wont be below the current maket - that doesnt make much sense. the rule (add to your winners) is more along the lines that you wanna be trading with bigger size on trades that are right and making you money; and keep your losers small by not having on a max position. Professional traders dont just trade one size lot every trade. They work their orders and continously add to their winners. If your initial position size is 10 cars and you're willing to buy between 1.3180 - 1.3210 with a stop around 1.3150 you may buy 2 at 1.3200; another 2 at 1.3190; another 4 at 1.3205; then a final 2 at 1.3200. Your not "adding to a loser" because your just spreading out your risk in case the market suddenly takes off or takes a dive and runs straight to your stop. Now if your in a position (say 10 cars) and the market is moving in your favor, adding to that winning position should be in your trading plan - add another 4 cars at price 'x', another 2 at price 'y'..... You wanna add more size if the position is working for you (and the market sentiment hasnt changed - example: a bullish trending market that isnt showing signs of a top yet). You then move your stops up to prices that are outside of random noise (trade at those levels would not signals a change in sentiment/trend). Read Livermoores book, there is a whole chapter on this. Its just like playing poker....your not going to bet the same amount on a shitty hand as compared to a 'royal flush' hand.