This was my first year trading using my own system. I have learned more than I could ever imagine. I have accumulated this knowledge not only from my own mistakes but from many of the great traders that I follow/look up to on twitter/stocktwits. I thought it was neccessary to reflect on my trading this year and make a list of rules that I believe are critical to my trading success. If you have any other rules or changes to mine I would love to hear them!
Rule 1: We strictly use price to make decisions. (Only price pays) The indicators we use are just for clarity and confirmation. We do not use fundamentals, news or analyst estimates to make decisions on entries/exits.
Rule 2: We are extremely picky with our entries. No one is forcing us to trade so we only take the best entries. We also do NOT chase trades; we will wait for the trades with the most favorable risk/rewards.
Rule 3: We only enter on confirmation of a break. We do not buy in a range and hope the trade goes in our anticipated direction.
Rule 4: We only trade when there is a valid entry according to our parameters. We do not trade just to trade.
Rule 5: We do NOT fight trends. If we stay with the trend it increases the probability that the trade will go in our favor, which increases the probability of a winning trade.
Rule 6: We are ok taking a small loss. We are ok with letting a small gain turn into a small loss/breakeven. We are NOT ok with letting a large gain turn into anything but a large gain.
Rule 7: We honor our stops; whether it is a predetermined stop or a mental stop.
Rule 8: We realize that our best trades are when price quickly moves away from the entry and never comes back.
Rule 9: We believe that we are trading our best when we are not actually doing any trading. When we are constantly trading that means the market is whipsawing us. Usually our best trades don’t require us to take any action.
Rule 10: We do NOT trade if the market environment does not fit our strategy. We sit on the sidelines watching until the market trends in a way that matches our approach.