| 1. Managing the risk of ruin. Do not risk so much on any one trade that 10 losing trades in a row will destroy your account. risking 1% to 2% of your trading capital per trade is a great baseline for eliminating the risk of ruin. 2. Only trade with a positive risk/reward ratio. Only take trades where your possible reward is at least two or three times the amount of capital you are risking in the trade. 3. Always trade in the direction of the prevailing trend. Always trade in the direction of the flow of capital for your specific time frame. Shorting rockets and catching falling knives is not profitable in the long run. 4. Trade a robust system. Back test and study your trading method, system, or style to ensure it is a winning system historically. The key is that it had bigger winners than losers over the long run in the past. 5. You must have the discipline to take your entries and exits as they are triggered. You must take your entries when they trigger, your losses when they are hit, and your profits when a run is over to be a successful trader. 6. You must persevere through losing periods. All successful traders were able to overcome their losing periods to come back and make the big money. If you quit you will not be around for the opportunity to win big. 7. If you want to be a winning trader you must follow your trading plan not your fear and greed. Emotions will undo a trader more than anything else. Trading too big is due to greed, missing a winning trade due to no entry is a sign of fear, traders must trade the math and probabilities not their own opinions or emotions. |
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rssLarry Hite on “Being Wrong”
One final important gem from Larry Hite is that being wrong is okay. He says he was never very good in school and not much of an athlete either. But he turned that to his advantage because he was able to grasp the idea that he could be wrong. In fact, it came as no surprise to him when he was wrong. Hite recalls with pride: “I’ve always built in an assumption of wrongness [in my trading]. I always ask myself: What is the worst thing that can possibly happen in this scenario? Then I use that worst-case scenario as my baseline. I always want to know what I’m risking, and how much I can lose. And sometimes, when you really look at it, there’s really not all that much risk [which is why you can get rich].”