Traders that have the right mind set, money management, and winning method make money, those that are missing even one of the three, will eventually ‘blow up’ their account. This applies to both professionals and amateurs.
Whether you are a swing trader just trading the market with the $SPY ETF, a growth investor up to your eyeballs in Google and Apple, or even a day trader, these principles still apply to you. I believe these are universal principles for all traders, many professionals have proven they are not bigger than these laws of trading, by destroying the capital in hedge funds and even entire banks.
- Winning system-Only trade tested systems with a positive expectancy in the long term.
- Faith– Your system has to allow you to trade your beliefs about the market.
- Risk/Reward-Never trade unless your profit expectations are greater than your capital at risk.
- Discipline-You have to keep trading your method even when it doesn’t work for a given time period.
- Ego-Admit when you are wrong.
- Emotions-Trade the math not your emotions.
- Risk of Ruin-Never risk more than 1% of your total account capital on any one trade.
- Position Sizing-Use your capital at risk to understand the right amount to trade based on the securities volatility.
- Capital at risk: Never put more than 6% of your total capital at risk at any given time on all positions.
- Trailing stops- Always have an exit strategy to lock in your winners.