Rules of trading are different than rules of investing but there are many similarities. If you are a trader, be careful and maintain discipline. Here are my 10 rules that you should never violate:
- Define how much you are willing to lose before making a trade. Set a defined dollar and percentage stop before you make the purchase.
- Know what you are buying and why you are buying it.
- Never buy something just because someone else said to buy it. Do your own research.
- Define where you want to sell.
- Don’t place all of your bets in one day. Phase into a position.
- Keep reasonable expectations. Don’t be too greedy. Remember, pigs get fat and hogs get slaughtered.
- Never buy a stock that has made strong advances on two consecutive days.
- Never short a stock that has made strong declines on two consecutive days.
- Be aware of established support for a stock and buy as close to that point as possible.
- Know why you are breaking any of the above rules.