1 Adopt a definite trading plan.

 

Because of the emotional stress inherent in any

speculative situation, you must have a predetermined

method of operation that includes a set of rules by which

you operate and to which you rigidly adhere, in order to

protect you from yourself. Very often your emotions will tell

you to do something totally foreign or negative to your market

trading plan. It is only by adhering to a preconceived formula

that you can resist the emotional temptations and stresses

that are constantly present in a speculative situation.

 

 

2 If you’re not sure, don’t trade.

 

If you’re in a trade and feel unsure of yourself, take your

loss or protect your profit with a stop. If you are unsure

of a position, you will be influenced by a multitude of

extraneous and unimportant details and will probably

end up taking a loss.

 

 

3 Being right PART of the time should still yield profits.

 

In speculating, it would be folly to expect to be right every

time. If you have the proper trading techniques, you should

be able to cut your losses short and let your profits run so

that even being right less than half of the time will show

excellent profits. This point is re-emphasized in Rule Four.

 

 

4 Cut your losses and let your profits ride.

 

The basic failing of most speculators is that they put a limit

on their profits and no limit on their losses. A trader hates to

admit to being wrong, and will often let losses ride in hopes

that eventually the market will turn around. After a while,

a trader who is wrong will begin hoping for a small loss

and give up hoping for a profit. Human nature also dictates

that an individual wants to take profits right away and be

“ right.” There is an old saying, “you never go broke taking

a small profit,” but you’ll certainly never get rich that way.

 

Small profits are the direct opposite of the best way of

making money in speculation. If you are correct when

entering a speculative situation, you will know it almost

immediately and will show a profit. However, if you are

wrong, you will show a loss and you should remove

yourself from the situation as quickly as possible.

 

Taking a small loss does not necessarily mean you were

wrong in your thinking. It simply means that your timing

was perhaps incorrect and that you should wait for the

correct timing and situation to allow you to reenter the

market. Remember, in any speculative situation, the

market is the final judge. You must let the market tell

you when you are wrong and when you are right. If you

show a profit, ride it until the market turns around and

tells you that you are no longer right, and, at that time,

you should get out, but not before! On the other hand,

the market will also tell you if you are wrong and it would

be a serious mistake to argue with what it is saying.

Almost every books about trading have mentioned something like that; therefore, you aren't saying anything new there.  However, on the battlefield, our instinct often take over and our instinct usually get us killed.

Stardust:

Almost every books about trading have mentioned something like that; therefore, you aren't saying anything new there.  However, on the battlefield, our instinct often take over and our instinct usually get us killed.

 

It's always good to go back to the basics. Plus, there are a lot of new people here who don't know this stuff.

I agree wholeheartedly. 

Sal, sorry, my english wasn't good and people often misunderstand my intention.  I was saying that your plan is good because those steps have been repeated over and over again in almost every books.  However, learning how to override our own nature instinct is the problem.   I know those steps too, I have been reading a lot of books, and I have been trading a long time, and yet I couldn't perform those basic steps.   Therefore,  new investors should be careful.  Like I said, in the heat of the battle,  your basic trading plan usually disappear into nothingness; your emotions and your insticts usually  take over  and that  will get you killed.  Knowing the basics is the first step; mastering them is the next step.

trader_sal:

Stardust:

Almost every books about trading have mentioned something like that; therefore, you aren't saying anything new there.  However, on the battlefield, our instinct often take over and our instinct usually get us killed.

It's always good to go back to the basics. Plus, there are a lot of new people here who don't know this stuff.

Now, I see my mistakes.   I should have left out the "you aren't saying anything new there" because that is the different between making friends or making enemies.  It goes to show how stupid I am...  Sorry about that.  I will definitely be more careful with my choice of words next time.

Good post.  Need to remember to stick to the plan all the time -no exceptions.  I think old-timers can benefit from this post too.

Stardust:

trader_sal:

Stardust:

Almost every books about trading have mentioned something like that; therefore, you aren't saying anything new there.  However, on the battlefield, our instinct often take over and our instinct usually get us killed.

It's always good to go back to the basics. Plus, there are a lot of new people here who don't know this stuff.

Now, I see my mistakes.   I should have left out the "you aren't saying anything new there" because that is the different between making friends or making enemies.  It goes to show how stupid I am...  Sorry about that.  I will definitely be more careful with my choice of words next time.

 

hehehe.... I's OK Stardust, you didn't offend me. I was actually affirming what you said.

 

Plan your trade, and trade your plan....  :-)

madjay:

Good post.  Need to remember to stick to the plan all the time -no exceptions.  I think old-timers can benefit from this post too.

 

Thanks madjay

It is good to tell new traders this.  I wasn't told, and I learned for myself when I lost almost 25% within two weeks.  I stopped trading completely for a couple weeks, did some research, discovered that rule #1.  A month after that loss I was back in with basically only two rules (I haven't quite figured out my trading style yet).

My rules were:
1.  Always have a stop.
2.  Only risk up to 2% of the portfolio in any one trade.

Aside from that, I allowed myself to explore countless methods (including both fundamental and technical), and I hope soon I figure things out in that regard.  However, with those two rules I went from losing over 20% in a week or so, to slightly beating the S&P over the course of 30 or so trades (even after losing so much to commissions).  Slightly beating the S&P is not incredible, but it is compared to what was happening prior to that.

That leads me to my next rule I have adoped:
3. Don't pay commissions.

And now I'm waiting for my funds to go through to Zecco.

So hopefully I'll figure out what trading style fits me best.  But in the meantime, I'm sticking with the rules that have saved me.  I count that loss as the best thing that has happened in my short experience of trading, because it taught me that I need rules.  I do wish someone would have told me that, but Mr. Market told me first.

b.james:

It is good to tell new traders this.  I wasn't told, and I learned for myself when I lost almost 25% within two weeks.  I stopped trading completely for a couple weeks, did some research, discovered that rule #1.  A month after that loss I was back in with basically only two rules (I haven't quite figured out my trading style yet).

My rules were:
1.  Always have a stop.
2.  Only risk up to 2% of the portfolio in any one trade.

Aside from that, I allowed myself to explore countless methods (including both fundamental and technical), and I hope soon I figure things out in that regard.  However, with those two rules I went from losing over 20% in a week or so, to slightly beating the S&P over the course of 30 or so trades (even after losing so much to commissions).  Slightly beating the S&P is not incredible, but it is compared to what was happening prior to that.

That leads me to my next rule I have adoped:
3. Don't pay commissions.

And now I'm waiting for my funds to go through to Zecco.

So hopefully I'll figure out what trading style fits me best.  But in the meantime, I'm sticking with the rules that have saved me.  I count that loss as the best thing that has happened in my short experience of trading, because it taught me that I need rules.  I do wish someone would have told me that, but Mr. Market told me first.

 

Very good rules! I noticed that your rules 1 & 2 are basically money management rules. Actually, I think MM is one of the most important sections of a trading plan. Preserve your capital, because without it, you can't trade.....game over!