Categories
Trading Tips

Looking at 15 Trading Rules

The following 15 trading rules were posted by zentrader.ca having been taking from Trend TV. While I agree with many of them, I have a problem with a few of the rules. See below.

1. Don’t be a tradeaholic
Agreed

2. You trade to make money – not for fun, games, or to escape boredom
Definitely

3. Never add to a bad trade
If you have a specific strategy which includes adding to a trade which has gone against you, that’s one thing. Just “averaging down” is usually a bad play.

4. Once you have a profit on a trade, never let it turn into a loss
This can be a really good plan for psychology purposes, but it may or may not be appropriate for the type of strategy/system you employ.

5. No hoping, no wishing, no would’ve, no opinions, no should’ve
It’s hard not to second-guess, and reviewing thinking after the fact is part of the learning process, but never do it in trade.

6. Don’t be a one way trader – be flexible, opportunities on both sides
More opportunities doesn’t necessarily mean better trading. Some systems, markets, and/or traders are just better one-way only.

7. Know your risk on each trade. Trade with stops to limit losses
Definitely yes on the first part. The second part is up for debate in some ways.

8. Look for 3-1 profit objective trade
Totally disagree. This can’t be taken in isolation. You can have fantastic results with a smaller R/R ratio. It depends on your system’s or method’s win %.

9. When initiating a trade, always get your price (use a limit order)
Depends on your system.

10. When liquidating a bad trade, always use a market order
Hard to disagree with.

11. Have a plan. Trade it. Monitor it.
Absolutely

12. Make 10 points on a million trades, not a million points on one trade
This is the difference between trend trading and other types. In trend trading you are going for infrequent big wins.

13. Learn from your own mistakes
Goes without saying.

14. Pay attention to weekly lows and highs
Again, depends on your trading system or methodology, but often useful.

15. Technicals and fundamentals are equally important
Depends on time frame.

What about you? Any thoughts on the rules above?

By John

Author of The Essentials of Trading

5 replies on “Looking at 15 Trading Rules”

Granting that using options takes me out of the realm as a trader by your definition, number 4 above is just stupid.

If a trade moves your way and you earn a couple pennies, there is no need to abandon rules to be protect those pennies. Those pennies are no different from any other pennies, and making special rules to protect them is not an efficient way to trade.

I love psychological benefits as well as anyone, but this rule must be applied to a larger, not ‘any’ profit.

Mark – Not sure where I ever suggested the use of options not being “trading”. I’ve certainly traded options myself, though clearly not at your level of sophistication.

As for your reaction to #4, can’t disagree with you there.

John,

Sorry, I did not mean your personal definition. I just meant that ‘traders’ are short-term people and by the nature of the strategies I choose to trade, I must hold positions (unless I exit to cut losses) for weeks to a couple of months.

As ‘trading’ is used by you and most others, that term is much more related to day-trading, and often with very very short holding times.

That’s why I don’t think of options as being for ‘traders.’

Sorry for not being clear.

Regards

Mark – It may be true that “trading” is often meant or felt to imply day-, or perhaps short-term swing-, trading. I wouldn’t take seriously the folks who put such a limit on the definition, though. A high percentage of my own trades are in the weeks to months holding period timeframe (at least in terms of initial expectation), and I don’t think anyone who knows what they are talking about would ever consider what I do as anything but trading. Likewise with you and your option positions. I’d even go as far as to suggest that the mere fact that you are trading options positions (as opposed to buy-write, etc.) automatically puts you firmly in the “trader” classification where most folks are concerned (as they would with futures, forex, etc.).

We are in agreement.

I call myself an options trader, but often feel that the term implies a short-term holding period.

Because I respect you as a trader, I am very pleased to know that your definition of the term is broader than mine (used to be)

I am now more comfortable calling myself a trader.

Regards

Leave a Reply

Your email address will not be published. Required fields are marked *