10 Golden Rules for Stock Trading Success

Your stock trading rules are your money. When you follow your rules you make money. However if you break your own stock trading rules the most likely outcome is that you will lose money.

Once you have a reliable set of stock trading rules it is important to keep them in mind. Here is one discipline that can reap rewards. Read these rules before your day starts and also read the rules when your day ends.

Rule 1: I must follow my rules.

Naturally if you develop a set of rules they are to be followed. It is human nature to want to vary or break rules and it takes discipline to continue to act in accordance with the established rules.

Rule 2: I will never risk more than 3% of my total portfolio on any one stock trade.

There are many old traders. There are many bold traders. But there are never any old bold traders. Protecting your capital base is fundamental to successful stock market trading over time.

Rule 3: I will cut my losses at 5% to 15% when I am wrong without question.

Some traders have an even lower tolerance for loss. The key point here is to have set points (stop loss) within the limits of your tolerance for loss. Stay informed about the performance of you stock and stick to your stop loss point.

Rule 4: Never set price targets.

This is a style that will allow me to get the most out of rising stocks. Simply let the profits run. Realistically, I can never pick tops. Never feel a stock has risen too high too quickly. Be willing to give back a good percentage of profits in the hope of much bigger profits.

The big money is made from trading the really BIG moves that I can occasionally catch.

Rule 5: Master one style.

Keep learning and getting better at this one method of trading. Never jump from one trading style to another. Master one style rather than become average at implementing several styles.

Rule 6: Let price and volume be my guides.

Never listen to any opinion about the stock market or individual stocks you are considering trading or are already trading. Everything is reflected in the price and volume.

Rule 7: Take all valid signals that show up.

Don’t make excuses. If an entry signal shows up you have no excuse not to take it.

Rule 8: Never trade from intra-day data. There is always stock price variation within the course of any trading day. Relying on this data for momentum trading can lead to some wrong decisions.

Rule 9: Take time out.

Successful stock trading isn’t solely about trading. It’s also about emotional strength and physical fitness. Reduce the stress every day by taking time off the computer and working on other areas. A stressful trader will not make it in the long term.

Rule 10: Be an above average trader.

In order to succeed in the stock market you don’t need to do anything exceptional. You simply need to not do what the average trader does. The average trader is inconsistent and undisciplined. Ask yourself every day, “Did I follow my method today?” If your answer is no then you are in trouble and it’s time to recommit yourself to your stock trading rules.

Mark Crisp is the creator of the Momentum Stock Trading System, an especially effective, stress free trading method that focuses on big moves for big profits. He also provides a complimentary copy of “The 7 Habits of a Highly Successful Trader” at http://www.stressfreetrading.com

Impatience Will Kill the Golden Goose

It is relatively simple to create a profitable system for trading forex, stocks, or commodities on paper, but it is not easy to successfully implement the system once it is created. While the primary forces underlying market behavior are fear and greed, the primary cause of unprofitable trading is IMPATIENCE, which may very well be a subset of both fear and greed.

A profitable trading system requires three basic elements and three fundamental characteristics. The basic elements are a strategy for entering positions, a strategy for protecting positions from unacceptably large losses, and a strategy for exiting positions with a profit. The fundamental characteristics of a profitable trading system are that winning trades are on average larger than losing trades, that the number of winning trades is larger than the number of losing trades, and that the frequency of trading signals is high enough to keep the attention of the trader focused on trading. (Of course, there can be successful variations on these fundamentals: for example, a system that produces 95% winners could have the average win much smaller than the average loss and still be profitable).

Once a profitable trading system is created, the trader’s inability to follow the rules of the system is the primary cause of unprofitable trading, and IMPATIENCE is one of the driving forces behind a trader’s inability to follow the rules.

Impatience will manifest itself in all of the following ways:

• A trader will follow a new trading system to the letter and begin to get good results, but will see ways that each individual trade could have had a better outcome by bending the system rules just a little. So, instead of being satisfied with X amount of income from the system, the trader will decide to try to achieve 2X income by changing the system rules on the fly, which always results in errors in judgment caused by fear and greed (which the system was designed to eliminate by its carefully formulated rules).
• A trader will see an entry signal forming (almost, but not quite – it needs Y action to manifest on the next bar before the signal becomes valid) and decide to enter a position on the supposition that the signal will trigger soon, anyway. Of course, the system was designed with black and white entry triggers, and violating these entry rules results in the arrival of bad behavior ruled by fear and greed.
• A trader will wait for hours (or days or weeks, depending upon the system’s time frame) for a proper signal to form and become frustrated by the lack of action on a slack day (or week or month . . .) and begin to talk herself into believing that a given scenario represents a valid signal, even though all the proper elements are not quite there, and enter positions that are doomed to failure because the market is just not in the correct mode for the system during that time.
• A trader will hold a winning position too long because he expects one trade to make up for the previous losing trade (or trades) in one swift move that is outside the parameters of profitability expected by the system.
• A trader will take a profit too soon because the market is taking longer to reach the system’s profit objective than she is comfortable with.
• A trader will take a position much larger than the system’s risk parameters allow for because he wants to make a big profit quickly (often to try to make up for serious previous losses caused by violating other system rules), but then when the market goes against him he will panic and exit with a loss before the system loss point is hit because the pain of holding the over-sized position is too great to bear. Then, she will scream in frustration as she watches the market turn around and move back to profitability soon after she takes her premature loss.

These just begin to illustrate the danger posed by impatience if a trader cannot keep it under control. Meditation, frequent breaks from the market, a clearly defined trading system and a clear set of profitability goals (“Forex Freedom”, by Robert Borowski illustrates a step by step strategy for building capital in a rational manner without impatience) can all help to keep the trader relaxed and trading within the rules, resulting in profits instead of losses.

For more information on trading, or to find other articles by the author, visit http://www.forexprofitsmeister.com today.