The rules for trading your stocks are your money. When you follow your own rules, you earn money. However, if you violate your stock trading rules, the most likely outcome is that you will lose money.
Once you have a reliable set of rules for trading stocks, it is important to keep them in mind. Here is one specialty that can pay off. Read these rules before your day starts and also read the rules when your day ends.
Rule 1: I must follow my rules.
Naturally, if you develop a set of rules, they must be followed. It is human nature to want to change or break the rules and it takes discipline to continue working according to the established rules.
Rule 2: I will never risk more than 3% of my total portfolio in any one stock trade.
There are many old merchants. There are many intrepid traders. But there is never a daring old trader. Protecting your capital base is fundamental to successful stock market trading over time.
Rule 3: I’ll cut my losses from 5% to 15% when I’m wrong with no question.
Some traders have lower loss tolerance. The key point here is to determine the points (stop loss) within your tolerance for loss. Stay on top of your stocks’ performance and stick to your stop loss.
Rule 4: Never set price targets.
This is the approach that will allow me to get the most out of the rising stocks. Simply let the profits flow. Realistically, I can never choose tops. Never feel that a stock is going up too fast. Be prepared to return a good percentage of the profits in hopes of making a much bigger profit.
The big money is made by trading really big moves that I can catch up every now and then.
Rule 5: Master one technique.
Keep learning and improving on this method of trading. Never jump from one trading style to another. Master one technique rather than becoming average in executing several styles.
Rule 6: Price and volume are indicative.
Never listen to any opinion about the stock market or individual stocks that you are actually considering trading or trading. Everything is reflected in the price and volume.
Rule 7: Take all the correct cues that appear.
Don’t make up excuses. If an entry signal appears, you have no excuse not to accept it.
Rule 8: Never trade day data. There is always a variation in stock prices during any trading day. Relying on this data to trade momentum can lead to some wrong decisions.
Rule 9: Take some time.
Successful stock trading is not just about trading. It’s also about emotional strength and fitness. Reduce stress every day by taking time off from the computer and working in other areas. A weary trader will not succeed in the long run.
Rule 10: Be an above average trader.
In order to be successful in the stock market, you don’t need to do anything exceptional. You just need not do what the average trader would. The average trader is inconsistent and undisciplined. Ask yourself every day, “Did you follow my lead today?” If your answer is no, then you are in trouble and it is time to recommit to your stock trading rules.