There was a post on the Trading Goddess blog the other day which included “the four cardinal rules of trading”. They are listed as:
- Trade with the trend.
- Cut losses short.
- Let profits run.
- Manage risk.
There’s some even better stuff in the post itself outside of the “rules”, and I encourage new traders especially to give it a read. I have couple of problems with this set of rules, however. I won’t argue against managing risk, though I would suggest that cutting losses short is part of that, but I get what’s being said there.
First of all, not everyone is well suited toward trading with the trend. Some people are very good at picking out support and resistance, and developing trading strategies based on fading the approaches to them. This could be called range trading, as opposed to trend trading.
Second, it’s only true that trend traders should let profits run. If you are someone who focuses on range trading, or otherwise have an approach where there are specific targets, then letting profits run will tend to be a losing proposition.
As always, test your strategies extensively to see how the operate best. Use the advice people like myself and others provide as guidance, not hard and fast rules. There are very few of them in trading.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
** See John’s full bio.
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