1. KNOW THYSELF
What kind of trading style fits your personality…Trend following? Day Trading? Buy and hold (please NO)? Next, what do you want to accomplish with your trading…Monthly Income? Long-Term Growth? Risk Aversion? And finally, you must have a grip on your emotions, because you will experience failure and success in trading and you need to know how you will react to both.
2. KEEP IT SIMPLE
You should be able to describe each trading strategy in your war chest on a 3×5 index card. There are so many different trading tools and indicators out there that it is easy to make trading and investing harder than it is. Find a few technical and/or fundamental indicators that you can apply to your trading, and master them.
Specialize in a few different trading strategies and then spread your risk out across multiple asset classes using those trading strategies. Make sure all of your trades are not dependent on the same sector, commodity, industry, or idea.
4. LOSERS AVERAGE LOSERS
Only losers add to losing positions. If a trade is going against you, move on and find another trade. It’s not about pride, it’s about profits.
5. NEVER STOP LEARNING
You must constantly make an investment in your trading education. Read books, go to seminars, or talk to other traders, because over time the traders that make a commitment to never stop learning will be the traders that stay in the game and are able to adjust their trading style to any market environment.
6. CREATE A TRADING PLAN
Having a trading plan creates discipline. Why are you making this trade? What’s your risk? What’s your reward? How much margin is required? What will you do if things get bad, or really good? These are questions you should be able to answer on every trade you execute.
7. BAD TRADE MOVE ON
I don’t care who you are, you are going to have bad trades. When you have a bad trade, take a break from trading, go to a movie, or kick the dog (once), but don’t sit around and pout. It’s important that you move on and start planning how you are going to get it back.
8. TRADE WITH CONFIDENCE
Trust your research, feel confident in the time and energy you have put into your trading strategy and know that no matter what the market does in the short term, you have the ability to make money in the long term.
9. THE MARKET IS GOING…????
Nobody knows where the market is going and you don’t either. So pick trading strategies that allow a little wiggle room in case you wake up one morning and the market doesn’t do exactly what you told it to. (See trade schools)
This word sums up a long term trader. You must have the discipline to follow your systems and manage your emotions hour after hour, day after day, year after year. If you are undisciplined in other areas of your life, don’t be surprised if one day you break your trading rules. You must practice discipline 24 hours a day. (more…)