Every trader would benefit from drawing up a list of rules they’ll need to follow if they want to find success in the market. I discovered this early on and continue to follow these guidelines each and every time I trade. Your personal list may vary based on the individual things you might struggle with, but feel free to steal or build off the Rules of Trading I drew up as a young trader, listed below in no particular order.
1. Set a daily goal, but do not be upset if you don’t achieve it. My personal goal is $2,000 a day. Absolutely achievable and once I reach it, I can shut things down and go about my day. If not, I can always try again tomorrow.
2. No trading before 6am. The easiest way to trap yourself in a trade with zero momentum is to trade in an environment where there is very little volume. Wait until more people are awake.
3. Similarly, no new trades after 3pm. Honestly, I prefer to be done trading by 11am, but there is momentum after the close with earnings and what not. I’ve noticed I find better success in pre-market than post-.
4. Start with 1,000-2,000 shares and scale in. There is nothing more annoying than jumping feet-first into a stock as it starts to climb only to have it reverse course because short-sellers or bag holders immediately begin to prey on it. Start small and add on the way up if it actually begins to climb. You’ll be less frustrated cutting a small loss than a big one.
5. Cut losses immediately. I like to use 20 cents as a guide. Don’t sit around waiting for the stock to go the direction you want it to just because you are in it. Cut the loss and wait for the next setup.
6. Find your walk-away point. This number really depends on the size of your account and how much of it you are willing to risk. For me, I really don’t like seeing a great big red -$1000 on my P&L. But it happens to the best of us. Just know the market will be there for you the next day, and you probably won’t be as emotional.
7. ALWAYS take profits. It’s one thing to let a stock climb and climb, bolstering more and more money the longer you hold. But at some point, that trade is going to top out. Don’t hold a stock longer than necessary. Make your money and move on with life.
8. Don’t force a trade. I have done this countless times. Sometimes you will have days where you do not have a quality setup worth trading. And I promise you, shutting things down without a trade will always be better than taking a bad trade on a stock out of boredom or necessity.
9. Don’t chase. I have done this countless times as well. You see a quality setup forming and the stock pops or drops exactly the way it should. Except you didn’t take the trade in time. So you get in too late. Only by that point, the move is over. So you end up waiting and now it’s going against you. Don’t do that. Pull the trigger on time and see where it gets you.
10. Do not overtrade. There will be plenty of days where you will find so much success that you won’t want to quit. The problem is, the further into the day you trade, the lower the volume becomes. If you want liquidity, you have to trade when everyone else is trading as well. Don’t get trapped in the Wild West of the afternoon where stocks have a tendency to make unbridled moves. Be happy with your profits early on and go about your day.
11. Do not trade with emotion. This one needs to be higher. Regardless, do not allow yourself to fall victim to revenge trading a stock that took all your money earlier in the day. Do not punch a hole in your monitor because an algo flush stopped you out and then the stock bounced back up. Every day is a new day. You must enter Zen mode every time you execute a trade.
12. Trade the obvious. So often in my early days, I tried trading stocks that had found momentum on a Monday only to become completely irrelevant by Tuesday. Don’t go buying shares of a stock that nobody cares about. Your money will become trapped and you will miss out on the stocks that everyone else is trading.
13. Never marry a stock. Oh boy, I have done this multiple times. It’s why I prefer to trade small caps. Too often, I have clung to stocks that are notorious for making the same sort of moves day after day every time the opening bell rings. I will never forget that Twitter stock (when it was publicly traded) sold off every single day at market open — except the times I tried to short it. Nope, squeezed out every time. And there were plenty of others. Stick with what’s moving in a direction that makes sense.
14. Never be afraid to walk away. It’s OK to have red days if your red days are comparatively smaller than your suckiest of green days. If the market is being wonky or if you yourself feel off, it’s completely fine to walk away until things even out.
15. I actually stole this from a Dez Bryant tweet he sent out on Christmas Day 2020: “It’s OK to be wrong. Accept, learn and grow.” You WILL have losing trades. It’s how you handle those losing trades that will define you and your success in this game. Accept. Learn. Grow.
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