Successful traders are never successful from day one. Even the best traders struggle at some point in their lives. It is through making mistakes and learning from them that the art of trading is mastered. Trading is a very personal activity and each trader must develop their own unique style. But, there are some general principles and guidelines that form the basis of any successful trading strategy. StockTock has developed the following rules to help traders achieve profitable and consistent trading over the long term.

Cut your losses quickly

This is a tough one! Human nature makes booking losses very difficult. After all, taking a loss is an admission that you were wrong. And worse yet, it means that you lost money. It is natural to do everything possible to avoid losing money. So rather than being disciplined and taking a small loss, you start negotiating with yourself. You tell yourself that your original exit point didn’t give the trade enough room to work. You tell yourself that if you double down, you should be able to get out at your break-even point. You search desperately for new signals that you are right and that the trade will come back in your direction. And sometimes, these undisciplined strategies work and you avoid the loss. But it only takes one bad trade to wipe out a trading account. Cutting losses quickly is the only disciplined approach for long-term trading success. Think of taking a small loss like an insurance policy. You pay a small amount now to protect yourself from having to pay an insurmountable amount later. Remember, the best traders are wrong all the time, but they minimize their losses and let their winners run.

Check your ego at the door

There is no place for arrogance on the trading floor. The stock market has the uncanny ability to identify and humble arrogant traders. The best traders respect the market at all times. Traders are most susceptible to arrogance after an extended winning streak. It’s amazing how weeks of disciplined trading can be wiped out by one bad day. Arrogance is a virus in your trading, as it eats away at the edges of your discipline. Without proper discipline, the market will eat you for lunch.

Keep emotions out of your trades

At its most fundamental level, the market is driven by two emotions: fear and greed. Getting emotional about trades has a very negative effect on perception and decision making. One of the most common emotions that creeps into traders’ psyche is fear (nervousness). When nervousness sets in, cut down in size and reduce risk immediately. Scared money never makes money! The best traders maintain a neutral emotional state at all times, allowing them to perceive new information without bias.

Don’t let a trade become an investment

Every trade has an immediate exit strategy. Anything else is an investment. Avoid turning a trade into an investment. If a trade does not do what you expect, cut your losses at your planned exit point. Do not hold onto a losing position thinking that it will come back eventually. Remember, the market can act irrational longer than you can stay solvent.

Adapt to market conditions and learn from mistakes

The most successful traders are constantly learning. Every mistake is an opportunity to learn something new. Every day in the market is different and trading strategies must adapt to those new conditions. Discipline is the only constant in your trading.

Take full responsibility for your trading

When you lose money, it’s natural to blame something other than yourself. Popular excuses are bad luck, distractions at home, unpredictable news events, market manipulation, and countless others. In reality, the only important factor that matters is you. Your actions decide whether you make money or lose money. If your trading is not going well, the only place to look is at yourself.

One-Liners

- You don’t have to make money everyday, but you do have to not lose money everyday.
- Your greatest concern should always be the worst case scenario.
- Nobody ever lost a dime taking profits.
- If you’re too nervous in a trade, you probably shouldn’t be in it.
- Don’t follow the crowd.
- If you’ve missed the move, keep missing it.
- Let your trades come to you, don’t chase.
- Sometimes, your best trades are the ones you don’t make.
- If you don’t have a good read, sit this one out.
- Your best trades are small losses that could have become huge losses.
- Don’t trade with money you cannot afford to lose.
- Scared money never makes money.
- Don’t trade without a plan.
- If you don’t understand it, don’t trade it.
- Don’t trade just to be in the action. There’s plenty of action at the casino.
- Never double down because adding to a loser usually brings more losing.
- Never change your exit strategy mid-trade.
- It doesn’t matter where a stock has come from, all that matters is where it’s going.
- Patience is the key to a good entry point, and a good entry point is the key to a good trade.
- From failed moves come fast moves.
- When calling a top or bottom, don’t act, but react!