|
As you progress through the year, it's easy to forget your system rules and your basic rules of trading. This can likely occur after you've had a recent string of losses, or even a string of big wins. To keep yourself on track and focused, develop a Rules of Thumb list and review it periodically. Here is a general list you can follow, or use as a starting point in developing your own list. Remember, your rules should fit your goals and trading style. They should be your own.
1. Be careful when trading in the first and last half hour of the trading day when the market is most volatile.
2. Be sure to consider your commission charges when calculating your potential returns. Round-trip commission charges shouldn’t exceed 1% of your position size.
3. Throughout the year as you rack up more profits, put enough money in totally safe investments (CD, Bond, Money Market) to pay your taxes.
4. Sell on the anticipation of an event (Fed announcement, earnings report, election, etc…) when everyone else is buying. When the event finally happens, the smart money may be selling the news.
5. Don't over-commit your funds. When you have all your money on the line, you will find it hard to make rational decisions.
6. Don't put all your eggs in one basket. Plan to put your money in a variety of investments in a variety of industries, sectors, and geographic locations.
7. Always remember that the market won’t do what you want it to do, or what you think it should do. The market just does what it does.
8. Expect to lose money on some investments. It happens. If it doesn't, you're not in the market. If you're diversified, a few losers won't hurt too bad. It’s part of the process.
9. Always trade with a clear profit objective and sell signal. That's how you know when to finally get out of an investment. Let the trade run its natural course.
10. Trade based on the numbers and your system. A hunch may pay off occasionally but that's called luck. Do the research and stick with your criterion.
11. Don't buy a stock just because it is low priced. It could go lower.
12. Don't sell a stock just because it is high priced. It could go higher.
13. Know what you plan to do before the market opens and do the research ahead of time. Once trading starts there may not be enough time to do all the research needed to make decisions.
14. Get your information from multiple sources. Don't just trade on single source newsletters, newspapers, trading strategies, etc…
15. Only get into an investment based on your research. Not because the stock is moving up. Not because of a rumor. Not because of the FED.
16. Always consider your risk and reward on every investment. A reward:risk ratio of 3:1 is ideal.
17. Don't use the money you need to live on to make investments (except CD's, Bonds, Money Markets). You want to give your investment time to grow and not have to cash them in a panic to make a rent payment. Scared money is soon lost.
18. Watch out for so called investment gurus, brokers, experts, and pundits who don't trade. If their advice was right all the time they would be out on their yacht right now.
19. Forget buying the stocks you see touted in monthly magazines. That article was written many weeks ago.
20. Trade with the broker that's right for you. Demand the service that you want at a reasonable commission rate. Change brokers if you can't get it.
21. Be sure to read your execution reports and monthly statements thoroughly. Even the big brokers make mistakes.
22. Learn from your own mistakes. It's okay to make a mistake once but try not to make the same mistake twice. If you make a mistake, don't beat yourself up. Make a note of it and move on.
23. Don’t trade if you are sick or over-stressed. You should be in positive spirits when placing trades.
24. Believe in yourself. Fear and self-doubt lead to hesitation and/or over-trading, which result in poor performance.
25. Set a monthly, quarterly or annual goal for your portfolio. If you make it, celebrate. Go out to dinner, take a weekend trip, or buy that jacket you’ve been looking at. You deserve it! Then get back to business.
|
