Top 5 Trading Rules You Need To Live By

Trading is inherently dangerous. Everyone knows that. We know that 90% of people who start to trade stocks eventually fail within the first year and most of their losses can be simply attributed to the fact that they didn’t follow any rules. They acted like gunsligners; randomly picking stocks with no systematic approach and hoping for the best.

If you want to gamble, go to Vegas. You’ll have a lot more fun and most likely lose a lot less than if you started trading.

However

If you want to trade PROPERLY and not blow up your account in the first year, then continue reading this article.

Watch the video below the top 5 rules for trading!

#1: Cut Your Losses Quickly

This rule cannot be overstated enough. I know it seems simple, but its so true: If everyone was simply able to cut their losses quickly, NO ONE would blow up their accounts, and no one would be bagholders. Unfortunately, its an issue that plagues so many new traders. If you cut the loss quickly, yes you lose a tiny amount of money, but small losses are impossible to avoid. As long as your trade was based on a consistent system, then the small loss is just a tiny step back in the long-term.

If you allow a small loss to turn into a huge one, it not only hurts your pocket book, but hurts your soul much more.

You will lose confidence, be upset with yourself, and potentially attempt to revenge trade to make the profits back (which can lead to disaster). Avoid all of this by simply having a risk level in place, and most importantly utilize a hard stop whenever you can. I don’t care if market makers or brokers can ‘see’ my stop; if they decide to take me out then so be it. If this starts to happen on a consistent basis, then that means I simply am entering too early, and look to enter more at the true support.

#2: Trust The Chart!

Never give too much dependence on some sort of indicator or study on the chart. The hard truth is that every single indicator is calculated from the chart itself. That means, whatever information you’re receiving from the indicator can be also seen just by reading simple price action.

Everyone sees the chart, not everyone sees or respects your indicator.

Have trust in support and resistance, but also understand price action and the trend. Build your knowledge on understanding trends, reversal signals, and signs of front side VS back side. Always base your entries and exits on support and resistance.

Keep this in mind; most (if not all) profitable traders I know mainly rely on price and volume, and maybe have 1 or 2 indicators to confirm what they already know from the chart.

#3: Have A Pre-Trading Checklist

So many new traders have an issue with overtrading, chasing, having FOMO, and overall making terrible entries. The absolute best way to avoid overtrading is to have a pre-trading checklist and STICK TO IT. I offer my pre-trading checklist as a part of my free course here

In order to have a proper trading checklist, you of course need to start identifying and pinpointing exactly what trading strategy you want to go with. Then, you need to narrow the variables and ‘signals’ that you must have checked off before entering the trade.

For example, you must ask yourself questions like:

Is this stock within my ideal price range?
Does this stock have a good float value?
Does this stock have a solid catalyst that will bring volume?

Asking yourself simple questions like this before you give into the adrenaline rush of trading will allow you to proceed with a clear mind and potentially avoid entering impulsively. Remember, stocks ALWAYS pull back, and if you miss this one trade, it won’t be the end of the world. It’s so much better to wait for the ideal moment to position yourself; for your pocketbook and your soul.

#4: Make A Plan Prior To Entering

This rule goes hand-in-hand with having a pre-trading checklist. Just like you should first verify that the trade is actually worth taking, you need to also figure out EXACTLY what price you want to enter at, what price you want to cut the loss (otherwise known as risk level) and what price you want to start locking in profits. YOU MUST DO THIS BEFORE YOU ENTER THE TRADE. If you wait until actually entering, you will be emotionally bias and more likely to act greedy, and not cut losses fast. ALWAYS make a plan prior to entering your trade!

It goes without saying that your trading plan should be based on the basic levels of support and resistance that the chart shows. It doesn’t make sense to take profits if the stock is still in a bullish uptrend and is holding support levels. Likewise, it doesn’t make sense to continue holding if the stock is showing signs of back-side and is breaking critical levels of support.

#5: Have A Trading Journal!

This is quite honestly THE MOST IMPORANT rule to follow. Honestly, I wouldn’t even call it a rule, because you shouldn’t even have the option to break it. This is a necessity of trading.

In order to be a consistent trader, you must first be using a consistent system of trading. Using the same strategy, trading the same stocks, and having the same mindset while trading. Then, you need to track the progress of all of these trades over time, and see your profitability numbers. Average % win, average % loss, win rate, and so on.

Do you REALLY think that you’ll be able to do this from memory?

OF COURSE NOT.

Every single trade MUST be tracked and then reflected on at a later date.

If you don’t do this, I promise you that you won’t be consistent. Every single professional trader that I have asked has a trading journal, and if you want to join their ranks, you will need one as well. Just like my trading checklist, I also provide a template for a trading journal to use in Excel as a part of my free training course. Check it out, learn how to be a profitable trader, and gain access to the top tools required in order to do so all for free.