My 7 Rules Of Trading
How many of you have your trading rules written down? How many follow some rules when you trade?
I want to share my 7 rules of trading
#1 Know Your Trading Time Frame Before You Enter A Trade
I find this is one of the most important thing you need to decide BEFORE you place a trade. Ask yourself these questions:
Is the set-up a swing trade (1-5days) or is it a position trade(more than 2 weeks)?
If it is a swing trade, what is the set up?
Are you trading on a breakout or are you buying on retracement?
Different trade setup will have different ETET( Entry price, Target price, Exit Price, Time frame). Their risk – reward ratio will also different too.
#2 Know What You Are Willing To Lose Before Counting Your Gains
This will help to determine the size of your trade.
Eg. I am looking to long a stock at $2.00 and my stop loss is $1.90.
The maximum I’m willing to lose for this trade is $500. The number of share to buy will be $500 / (2.00-1.90) = 5000 shares.
#3 Don’t Place A Trade Before Market Opens
Wait for the market to trade for about 30mins before taking a trade.
This is help to give you a feel of the market.
In fact, more than 50% of my trades are placed after 3:30pm. This is because most of the time the candlestick for that day would have been formed already.
#4 Don’t Anticipate A Trade
Unless a stock hit above my trigger price, I will not anticipate and get in early.
I have to honest about this; there are times when I DO anticipate and try to get in earlier. But most of time the trade will turn out to be a loser. 🙁
#5 Do Your Homework Before Market Open
This will include things like the overall market analysis, stock scanning, writing down ETET and knowing your trading size.
If I am going long , I will prefer the overall market to be bullish. Always buy the strongest stock and short the weakest stock.
#6 Never Average Down But Can Consider Average Up
If the trade move against you, make the move to cut your losses or reduce your position.
If I am right within a short period of time (less than day) and already in the money, I may consider adding my position near close of the day.
#7 Always Look Out For Increasing Volume
This is especially true if going long. If I am buying a stock, I want others to join me in buying the stock.
It will be even better if the stock in in the top volume list. If you buy a stock and the volume does not pick up, consider reducing your position at closing.
These are the seven rules that I follow. You may consider them to make them your rules too. My belief is that to be profitable in trading, you need to always sell the loser and add position on a winning stock.