10 Golden Rules
1. Protect & Preserve Your Capital!
Inexperienced traders enter the markets focused on how much money they can make. Professional traders do the exact opposite: they focus on how much money they can lose and how they will ensure any loss is kept to a minimum.
Follow the professionals: PROTECT & PRESERVE YOUR CAPITAL
2. Always set a STOP LOSS. ALWAYS!
The way to achieve rule 1 is to set a stop loss. Do not rely on Mental Stop Loss.
3. Cut the Losses Short- Let the Profits Run!
Cutting the losses short is achieved by always having a Stop Loss! In addition, continually ask yourself this question: ‘had I not entered this trade when I did, would I want to be in it now’? If the answer is no, then exit immediately. You do not need or have to wait for your stop to be hit before exiting a trade! You can always re-enter. One thing does not preclude the other. Letting the Profits run is money management and an excellent exit strategy. Fine tune these techniques and you will be a profitable, successful trader.
4. Trade what you see- Not what you think!
Egos and trading don’t mix. The little voice inside your head that tells you what the market is going to do next needs to be gagged. While listening to that voice you are not paying attention to what the market is telling you. Focus on the charts, use what you know and trust what you know. Look at the charts and what you see, not what you want them to say and NOT what you think.
5. Never chase your Losses!
After a losing trade it is imperative to keep your emotions in check. Inevitably when you re-enter you will be trading for revenge. Don’t do it! If you chase your losses, determined to recover them, the outcome is likely to be disastrous. Typically, this action results in more losses, more emotions, etc. Don’t chase! Move on!
6. Never Average Down!
This is a follow up of rule 5. Commit both of these errors and you run a very high probability of blowing up your account. Averaging down is a tactic used by long term investors or Professional Traders. If the trade goes against you, get out fast and DO NOT AVERAGE DOWN!
7. Keep Excellent Records!
It is essential to keep records of all your trades. Not just a spreadsheet on P/L, but also the reasoning for the trade. Enter all trades into your Journal and substantiate the trade, include reasoning, emotions and results. Fail to Plan, then plan to fail!
8. Maintain Patience and Discipline!
Keeping good records will help enable you to remain patient and disciplined in your trades. Be disciplined and enter the high probability trades that you can substantiate. That means no random entries! If you fail consistently with these principles there are two options:
- Consider a software entry as computers have a terrific track record when it comes to patience and discipline with no emotion
- Give up trading – it’s not for you
9. Keep it Simple! ( KISS)
Top professionals typically use very simple strategies with very few indicators. They maintain self-discipline and trade according to their plan with little emotion. Make it easy on yourself and KEEP IT SIMPLE STUPID!
10. Plan the Trade – Trade the Plan!
Trading is not gambling; it’s a business. The trader with a detailed plan and who is patient and disciplined while following the plan will be successful. However, the trader that trades with no plan is no better than the punter that throws darts at a board while blindfolded in order to pick the winning horse at the track.