There are some basic principles and rules that will make you successful trading regardless of what you trade. These are interchangeable for stock traders, option traders, future traders, and even forex traders. It doesn’t matter what you trade, it’s how you trade that makes you successful or not!
The 7 Day Challenge
Only about 5% or less of you all will actually do this but I’ll make the challenge anyway. I am already a strong believer in following a trading system or I wouldn’t keep writing and preaching about it. But once you have a reliable set of trading rules, your discipline can help you reap huge rewards.
Read these rules before your day starts for just 7 days! I promise you that your whole way of thinking and trading will change in just 1 week.
Rule 1: Follow Your Written Trading Plan.
If you didn’t guess that this was the first rule then you haven’t been reading my blog long enough. This is the #1 reason why traders fail. It is human nature to want to vary or break rules and it takes discipline to continue to act in accordance with the established rules.
Write out a plan, even if it’s simple at first, and follow it religiously.
Rule 2: Keep Learning On A Daily Basis.
The markets are changing every single day and the strategies that you may have used 5 years ago might not work now. You need to continue to educate yourself on a daily basis.
Read an article or watch a video tutorial, and overtime you will build a huge knowledge base that is fundamental to successful trading.
Rule 3: Don’t Let Losses Compound.
Per your trading plan you should already know when and where you will cut your losses. Whether it’s a technical failure or percentage move doesn’t matter as long as you have something in place to mitigate risk.
Some traders have an even lower tolerance for loss than you might have which is fine. The key point here is to have set points (stop loss) within the limits of your tolerance for loss.
Rule 4: Never Set A Price Target.
Hear me out on this. Don’t set a price target and automatically get out of good trades. If you are long a Call and the stock hits your “target” don’t just automatically exit! Let profits run wild. Place a trailing stop loss order and see how high it can go from there after locking in gains.
Realistically, I can never pick tops and neither can you so why exit? Never feel a stock has risen too high too quickly (or fallen too low too quickly either).
Rule 5: Successful Trading Is Part Of A Balanced Life
Success is so much more than being a profitable trader. You can not neglect:
- Health
- Wealth
- Family
- Love
- Lifestyle
- Spirituality
The best traders keep a balance between these; they know focusing on only one of these does not equal success. But maintaining balance is not easy, there are times when your focus is on other areas and trading is neglected.
This is part of your life’s journey.
To become the best trader you can be, define your goals in these areas and then you have a direction for your life as a trader.
Rule 6: Master One Strategy At A Time.
Never jump from one trading style to another. Master one style and strategy first rather than becoming average at several. Focus and work hard to completely understand every angle, abnormality, risk, reward of say Credit Spreads and then move on to Iron Condors.
Don’t be a jack of all trades when it comes to options trading until you have experience.
Guided Video Training At Your Own Pace w/ Option Alpha “Tracks”: Options trading can be overwhelming if you don’t know where to start. Our “Tracks” are guided learning courses that help you reach your goals.
Each program was hand-crafted to help you regardless of your current options trading experience.
Rule 7: If You Think You Are Wrong, Get Out
This rule is for some reason easily forgotten or ignored. You cannot be right with your market timing all the time. If you are wrong, get out. Listen to that little voice in your head telling you that you are wrong.
I have heard traders say, “I know I am wrong” — as they continue to hold on to their position and lose money.
If you are wrong, get out. Listen to that little voice in your head telling you that you are wrong.I have heard traders say, “I know I am wrong” — as they continue to hold on to their position and lose money.
I have heard traders say, “I know I am wrong” — as they continue to hold on to their position and lose money.
Hanging on (and on, and on) to a trade is where a lot of the money goes.
Generally, as soon as things start to go wrong in your trade, you are better off closing the trade. Do not hang around hoping and wishing (I will wait just one more day… and one more… and one more…”).
Meanwhile, new setups with high edge occur continuously. At the first sign of being wrong, GET OUT.
Rule 8: Risk Only What You Can Afford To Lose
Never trade with borrowed money.
It also should go without saying that the money in your trading account should not be allocated for paying the loans, bills or other important obligations you might have. You must be prepared to lose all the money allocated to your trading account.
Rule 9: Listen To The Charts (My Favorite).
In case you didn’t already know, you cannot affect the market. Sorry, but you just can’t. Praying, pleading, and even giving up your 1st born son won’t even help. So stop hoping and wishing already!
Everything is reflected in the price and volume when it comes to technical analysis — this is why I favor it over any other system. Master the charts and let them guide you.
Rule 10: Learn From Every Trade
I know many traders that cannot figure out why they do not have the returns they know is possible for them to have. I have tried to explain to them that they need to track what they are doing to identify bad habits.
Without a trading journal where you track your trades, it is hard to remember exactly what made you act in a certain way at the time.
The best traders track their trades that enables them to learn from every trade and thereby advance as a trader so they can make more money.
Tracking your trading does not have to be complicated. Use a simple Excel document or pen and paper where you write down the security, date, price, your stop price, setup, and your thoughts.
When you close your position you write down the date, price if you followed your rules, gain/loss, and your thoughts.
Simple as that!
Rule 11: Don’t Make Excuses, I Have No Pity!
We live in a period of time where there is limitless opportunity to build massive wealth. The wealth of information and training online today about trading is incredible — and for the most part free.
I don’t pity anyone who gives me an excuse as to why they are not successful! Work hard now and the reward will be great at the end of the day.
Rule 12: Stop The “Analysis Paralysis”
Start trading more often and stop analyzing the markets to death. Now of course don’t take this over board and become a day trader right. The point here is that you set up a system and continue to make trades — even if they are small trades (1 or 2 contracts at a time).
Most people just analyze and analyze but never get in! How are you ever going to learn? Start small but keep trading. If you learn to master trading with only a few shares, then trading a couple hundred or thousand shares will be much more successful.
Rule 13: Walk Away From The Computer.
My own personal morning routine includes this element and it’s essential for clearing your mind. Successful trading isn’t solely about trading — it’s also about being emotionally and physically strong.
Reduce the stress every day by taking time off the computer and working on other areas of your life — especially family. A stressed out trader will not make it in the long run.
Rule 14: Be An Above-Average Trader.
We all trade for 2 simple reasons: Money and Freedom. In order to succeed in any market you need to set your expectations high. Don’t settle for mediocrity.
Stay motivated and set realistic and achievable goals that continue to take you to the next level. And finally, ask for help from others, get a coach, or join a trading forum to keep you accountable.
