The Big Picture

12 Trading Rules

Sunday, September 10, 2006 | 07:37 AM

in Apprenticed Investor | Psychology/Sentiment | Technical Analysis | Trading

All Summer long, Hello Trader has been running a nice list of the top-12-trading-rules, along with a detailed explanation of each.

Apprenticed Investor readers will certainly recognize many of these. Here's the short list, go to Hello Trader to see the rest.

Rule # 1: Let your winners run, cut your losers short

Rule # 2: Don’t add to losing positions

Rule # 3: Don’t fight the trend / tape

Rule # 4: Buy strength and sell weakness, not the other way around.

Rule # 5: Trade your personality

Rule # 6: Plan your trade and trade your plan

Rule # 7: When the reason for entering a trade is no longer valid, get out

Rule # 8: Don’t be the weak money

Rule # 9: Keep a trade diary

Rule # 10: Never risk more than 5 percent of your account equity on a trade

Rule # 11: Risk a fixed percentage of capital on every trade

Rule # 12: Focus on market selection

Good stuff!

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Comments

For a serious investor - as opposed to a trader - there's probably only one useful rule - and it's a question.

If this company is added to, or deleted from, my portfolio - will that decision enhance or degrade the future portfolio returns?

Posted by: permabull | Sep 10, 2006 9:32:27 AM

these rules are great and timeless ....
it's amazing that so few people follow them and continuously make the same mistakes with their money.....
whether it's Market Wizards or Supertraders or Money Masters or Jesse Livermore and Bernard Baruch , all the greats follow the same simple rules

Posted by: rm | Sep 10, 2006 2:19:44 PM

Number 2 is generally true, emphasis on "generally."

Yeah, you shouldn't add to a losing position. It's usually a bad idea.

Except, every once in a while, it makes a sense -- but only if you're an experienced and agile trader.

It reminds me of the "insurance" bet in blackjack. It's a dumb bet for most folks who play the game because the odds are against it.

But, if you're an expert card counter and you're playing basic strategy and the true count goes positive by plus 2 or better, then the insurance bet should be made.

Same thing with adding to a losing position -- there are circumstance where an expert trader SHOULD do it. Not often, but every once in a while.

Posted by: John Navin | Sep 10, 2006 9:58:05 PM

recomendations are trully good I picked up a few and reinforced some , but here is the question, when you pick over stocks with not only national operation what bout the differences in the nature of commercial activity on the external and domestic markets? how value, estimate, etc this factor?

Posted by: alexander bukinis | Sep 11, 2006 1:23:28 AM

The Big Picture is my favorite blog to read everyday.

I found this list of 12 Trading Rules on your sites - and unfortunately, none of the links to the HelloTrader explanations for each of these points work anymore. Do you happen to have the expanded explanations?

Best,

Thomas

Posted by: Thomas Foley | Apr 30, 2008 10:02:34 PM