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Your stock trading rules are your money. When you follow your rules, you make money. But if you break your own stock trading rules, you will most likely lose money.
Once you have a reliable set of stock trading rules, it’s important to keep them in mind. Here’s a discipline that can reap you rewards. Read these rules before your day starts and read the rules when your day ends.
Rule 1: I must follow my rules.
Naturally, if you develop a set of rules, you need to follow them. It is human nature to want to change or break the rules, and it takes discipline to continue to behave according to the set rules.
Rule 2: I will never risk more than 3% of my total portfolio on any one stock trade.
There are many old traders. There are many brave traders. But there are never any old brave traders. Protecting your capital base is essential for successful stock market trading over time.
Rule 3: When I am unquestionably wrong, I will reduce my losses by 5% to 15%.
Some traders have an even lower loss tolerance. The key here is to have set points (stop losses) set within the limits of your loss tolerance. Stay informed about your stock’s performance and stick to your stop-loss point.
Rule 4: Never set a price target.
This is a style that will allow me to make the most of rising stocks. Let the profits continue. Realistically, I can never pick tops. Never think that a stock is rising too fast. Be willing to give back a good percentage of profits in the hope of much bigger profits.
The big money is made from trading the really BIG moves that I can occasionally catch.
Rule 5: Master one style.
Keep learning and getting better at this one trading method. Never jump from one trading style to another. Master one style instead of being average at practicing several styles.
Rule 6: Let price and volume be my guide.
Don’t listen to any opinions about the stock market or individual stocks you intend to trade or are already trading. Everything is reflected in price and volume.
Rule 7: Take all valid signals as they arise.
Do not make excuses. If an entry signal appears, you have no excuse not to take it.
Rule 8: Never trade on intraday data. There are always changes in stock prices within any trading day. Relying on this data for momentum trading can lead to some wrong decisions.
Rule 9: Take your time.
Successful stock trading is not only about trading. It’s also about emotional strength and physical fitness. Reduce stress by taking time away from the computer every day and working on other areas. A stressed trader will not make it in the long run.
Rule 10: Be an above-average trader.
You don’t need to do anything extraordinary to succeed in the stock market. You just need to not do what the average trader does. The average trader is inconsistent and undisciplined. Every day ask yourself, “Did I follow my method today?” If the answer is no, you are in trouble and it’s time to redefine your stock trading rules.
