A member of the Trade2Win forum posted the following set of trading rules. I love it when people do this – in a twisted sort of way. It lets me poke holes in them because the almost always tend to rely on a set of assumptions, ones which are often not uniformly applicable.

Here we go.

•Always use stop losses to your position at a smaller loss preventing a large devastating loss
Not all trading strategies work well with stops, for one thing. For another, I personally don’t use “stop losses” because I employ stops to exit positions which are not performing properly, not just to guard against a large loss.

•Do not change your stop loss after you’ve entered it
Assuming the poster mean that you shouldn’t make your stop wider after putting it in, then that’s generally good advice.

•Close your position when you have a decent profit
Close your position when your system/method says you should close it. Don’t just take profits to take profits. That’s a quick road to poor results.

•Do not over trade and do not hold oversized positions
Definitely! Over-trading kills a lot of traders.

•Recognize the difference between a trending market and a range bound market
This certainly can be very helpful.

•Know who is in power, bulls, bears or neither
This is basically saying the same as the previous rule.

•Recognize when your position is good, or if it’s a miss, act swiftly and exit
Your system/method should have a way for you to do this.

•Use if/then logic. If interest rates go up, price goes up, etc
Basically this means set up clear rules in your trading plan.

•Use small lot sizes
Use the right position size. Large and small are relative.

•Place paper trades using your trading demo account until you are sure of your trading plan
Good advice.

•Trade to trade well not to make money
Trading is all about consitently making good trades. The profits will follow.

•Do not force the trade by entering at any old price
In other words, trade according to your plan.

•Use the best entry and exit price points possible
Again, trade to your plan.

•Never take a trade unless three or more indicators come together
If that’s what your system is all about, then fine. My general feeling on this is that people who feel the need to use multiple indicators are expressing a psychological shortcoming. More indicators generally doesn’t increase the odds of success.

•Always trade in the direction of the current trend
Not all strategies are optimally placed to trade in the direction of the trend.

I’ve said it before, and I’ll no doubt say it again. Be very, very careful when someone tells you “never” or “always”. There are very few absolutes in trading. People who suggest otherwise are almost certainly speaking from a very narrow perspective and/or lack of experience.

Struggling with support & resistance and knowing what the key market levels are? Check out the Price Distribution Analysis methods I use.

Bookmark to:

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