My Trading Rules

Well there you have it ,10 years too late but better late than never.  My own set of trading rules.

Trading Rules

1. Capital is scarce and opportunities are abundant. Trade accordingly, preserve your capital.
2. Trading is not a race, it is a marathon. Be patient and wait for the proper setup.
3. Cut your losses short! You are not smarter than the market! Let price action and volume speak for itself.
4. Set a mental stop before entering trade! Based on support and resistance. Look for multiple timeframes.
5. Do not chase a stock.
6. Only trade with full attention /focus.
7. Be careful with overnight positions. Rather not, except when the odds are already in your favour and in the money.
8. Do not hedge a short term trade with options, do not let a trade become an investment.
9. Have patience, Try (when ITM ) to ride it out when price action /volume points to extend of that direction. But remember to take profits or the market will eventually take them back.
10. Do not trade when price during the day is already up or down > 10% unless strong price action tells different.

I never wanted to write down any rules, because I really don’t like rules and I never thought that defining my own set of trading rules could help me trade better.  I just wanted to trade freely and not constraint by any rule at all. How much more wrong could I have been. After enduring substantial losses, accumulated through trading with flawed trading strategies, and by time through no trading strategy at all, eventually I took the advice of some seasoned daytraders and composed my own set of trading rules.

But why does a stock daytrader need a set of rules anyway and why is it so important that it is his or hers own specific set of rules?

In short:
The human mind has many pitfalls and if you pay good attention to your own behaviour and actions especially during the game of trading stocks you painfully become aware of these pitfalls. All these little flawes in your personality will get magnified when trading.

During trading all the basic human emotions will present themselves on one day or another. Fear, greed, love and hate or a derivative of these.  Some people are more vulnerable to i.e. greed, others to love. For example if you find yourself many times holding on to a trade too long and these trades turns to a loss, you have to create yourself a rule that protects you from falling into the trap of ” falling in love”  with a stock.

So after thoroughly examining my trades history and introspective examination of my mind I wrote down this set of rules.
Some rules I have defined myself, some I borrowed from others.