1. Get educated - If you are not, the market will make you pay. If you play the market without educating yourself, the market will inevitably take your hard earned money. You may get lucky once or twice, but in the long run the market will take it all. It is definitely cheaper to get educated about the market rather than learn by trial and error.
2. Don’t trade with capital you cannot afford to lose - The stress of trading is high enough. Scared money never makes money. The market is unforgiving and will take your last dime if you let it. Trade only with capital that you can afford to lose.
3. Know why you are entering a position - Don’t gamble and enter a position just to be in the market. Enter with a plan. Have a target for the position that you enter. More importantly, have an exit strategy for the position if you are wrong. Jesse Livermore, one of the greatest traders to ever live, said 10% was the most he was willing to lose on a single trade.
4. Never average down on a losing position - If you have entered a position and you are wrong why compound that loss by adding more. In 2000, we recall many people averaging down on long positions only to see them fall lower. Example, Bought LU(Lucent) @ $80.00 in the year 2000. Added more stock in 2001 @ $45. In 2004, the stock we trading at $2.50. Never average down on you’re losing positions. It is a recipe for disaster.
5. Never put all of your capital on one position - If you leverage yourself too much on one position you will not be able to take another position should a better one come along. Also, it becomes very difficult to control emotions when you are over leveraged in one stock.
6. Sell your losing positions and keep your winners - It is human nature to want to keep your losing position until you are even or positive. Most investors sell the winning position to hold the loser. However, the winner continues to win and the loser continues to lose. We’ve seen this happen time and time again. Remember keep your winners and cut the losers.
7. Let your winning position run and cut your losers fast - This is a hard one. Many times when you get a small profit you take it too quickly only to see the position go to new highs. Know why you are selling the winner. That is how you make the big profits.
8. Never change your stop price - Once you place a stop price, whether physical or mental, always abide by it. So many times we have seen stops ignored and the losses become enormous. Stops are a form of damage control or insurance. If you loose too much on a given position, it could knock you out of the game completely.
9. Learn to lose small - The market is unforgiving. This is a humbling profession and in order to survive you must keep all losses small and understand that they will happen. Once you learn to lose small, you will be on your way to success.
10. Buying and selling on news and tips is always wrong - News and tips are the same. The market/stock already has the news priced in. This is why many times a stock sells off on great news and rallies on bad news. It’s already factored in.
11. Trade what you see, not what you believe - As much as you hope, pray, wish…a trade will act the way it will act. Watch price action and charts; it tells you everything. Once you turn towards faith and hope, just get out!
12. Entry points are everything - The correct entry point will make all the difference. Step back, and wait patiently. If you miss it, we promise another trade will come along shortly.
13. Quick and easy - A day trade is supposed to work out in an allotted time. This time should be thought about prior to entering a trade. Once in the trade, if it doesn’t materialize within that time frame, chances are it will turn out to be a loss. Dump the position if it doesn’t work out in that time frame. Example - Entering a long position as a day trade, we expect a run-up in price within 5 minutes. If we’re still sitting in that position in 10 minutes, chances are it’s either losing already or will become a loser. Take the FLAT OUT or SMALL LOSS!
14. Stops - Always use stops. Even better, use a mental stop, but only if you truly can abide by it.
15. Big loss - No profitable day trader takes a big loss. Small losses are the key to success. If you are making $200 per day trade, then the most you should ever lose on one day trade is $200. Example of the wrong way - If you make $200 on 9 straight trades and on the 10th trade you lose $2,000, how much did I make or lose? (-$200). You might be batting 90%, but you’re a losing trader!
16. Patience - Trading is like being a lion and waiting in the long grasses to pounce. Stay back and wait for the perfect time to jump on the trade. Do not worry if you have not made a trade all day. One will come along. Jumping out at the wrong time will only mean you go hungry.
17. Entering the trade - Before buying or selling a swing trade or day trade always do your DD (due diligence). Analyze the charts, read the technicals and fundamentals, then enter. Know the reason you are entering, and know what you expect to make out of it. Never let it become a losing trade.
18. Never let a winner become a loser - Never enter a position, be in the money significantly, and then watch as that position becomes a loser. Once you are in the money on a trade, set a stop at least at break even, or set a trailing stop.
19. Never let your emotions affect your trade - A good trader has no emotions. We are supposed to trade based only on what we see. Just because you’re trade was up $1000 dollars 10 minutes ago and now is only up $700, doesn’t mean you shouldn’t sell at +$700. Too many times we have seen people get attached to their max profit and only realize their mistake when that position goes negative. Any profit is a good profit.
20. No trader ever went broke taking a profit.
21. Bulls make money, Bears make money, but Pigs get slaughtered - Stay humble in the market. Expect each position to pay you off, but don’t expect too much. Be smart about knowing when you have made enough. Get out and wait for the next trade.
22. Tips are factored in as well - The market is like a time machine and will amaze you at what is already factored into the price. Many times a stock will sell off on good news. Buy on rumor Sell on news.
23. Market knows best - Realize that the market is always right. If a stock is falling/rising there is a reason. Do not try and force your views on the stock. It’s a losing battle.
