Trading Rules to Profit

Most new traders always want to know what rules should I follow. Experienced traders are always on the lookout for additional rules to help them prevent previous mistakes. Each trading strategy can present it’s own set of rules but as we all know rules are meant to be broken and they are. Trading rules for a strategy are like a checklist a pilot uses before takeoff. Battery switch, hydraulics, flaps, landing gear, cockpit lighting, oops no lights in the cockpit. Will the plane still fly? Yes. Is there more risk? Yes, especially at night. Can we get from point A to B? Yes. I have found that by not getting hung up on any one specific set of rules I can then encompass all my strategies into one philosophy containing six core areas that I can apply to any trade in order to make a PROFIT.

· Plan – who, what, when, where, why and how. Know your stocks, entries, exits and charts . The old saying of plan your trade then trade your plan is the best advice one can give or get.

· Risk – always know the risk/reward of each trade. Don’t ask how much can I make instead ask how much can I lose. Always have a stop in place, even if it's a mental stop. Never bet the farm. Always set a percentage of your account as a maximum for any one trade. Example: with 10% set as your max you could leave 20% in cash and still have eight trades open at any given time.

· Organize – write it down, use an Excel spread sheet, a Franklin Planner or white board. Keep track of your trades, wins, loses, notes and mistakes. You’d be surprised what you will learn from last years trades.

· Fundamentals – I only trade with fundamentally sound stocks. Never trade a stock on a “hot tip” or because your wife likes a purse made by a certain company. Whether long or short you need to understand the financials of a company and how it will support the direction of your trade.

· Investigate – everyone has skeletons in their closets. When you think you have done your due diligence on a company then Google it one more time. You never know when that take over, merger, lawsuit or CEO scandal might pop up and have an adverse effect on your trade.

· Trade – it’s not that complicated boys and girls. Once you have chosen a strategy and are comfortable with it then develop a philosophy or guideline similar to one I have laid out above. If you address it every day with a positive attitude you will see results.

P.R.O.F.I.T.