10 Rules of Trading

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1. Trade with an edge
Successful trading starts, but does not end, with a set of rules that has shown to consistently lead to profits. These trading rules should be tested across a variety of market conditions to ensure that they produce profits without portfolio destroying drawdowns. Once you have the rules right, you can work on following them.

2. Don't take more risk than you can tolerate
Masterful trading is about mastering your emotions and the key to that is not letting your fear of losing cloud your judgment. If you risk more than you are comfortable with, it is likely that you will break your trading rules. If you risk little you are less likely to care about losing and more likely to be a disciplined trader.

3. Never let small losses grow in to big losses
Before you execute any trade you should define where your exit door is. Establish the price point where the market will prove your entry decision was wrong and, if the stock gets to that price point, exit the trade and take the small loss. Don't let the hope for a turnaround make you stick with the trade and let a small loss grow in to a bigger one.

4. Never stop small profits from growing in to big profits
You will be right some of the time, make sure that when you are right you let the profit run until the market demonstrates signs of a reversal. Remember that your profitable trades have to pay for the losers and earn you a return for your risk. The profit is in the patience.

5. Don't fight the mood of the market
The market can stay wrong longer than you can stay liquid so trade with the market's sentiment. If the buyers are in control, buy. If the sellers are in control, short. Learn to understand how to read the trend and don't trade against it.

6. Keep it simple
Winning traders rarely have a complex set of rules. You can over analyze the market and over optimize your trading rules, so be sure to keep your list of requirements relatively short and straight forward. Simple rules are easier to follow and easier to profit from.

7. Don't work too hard
Good trades are obvious, if you have to work really hard to uncover an opportunity then the chances are good that the trade is a marginal one. When the going gets tough, good traders get lazy.

8. Don't trade to fix past mistakes
What has happened in the past must be irrelevant to the trading decisions you make in the future. We all want to escape the pain of a recent loss, but taking a marginal trade in an attempt to turn the pain in to happiness is usually a quick way to add more pain. Every trade must stand on its own merits and not be guided by your emotional responses to past experiences.

9. Do track your trades
When a trade leads to a loss, you have bought yourself an education. Be sure to learn from that lesson by keeping your past trades in a journal to be studied and analyzed. As you collect a large number of trades you will likely see a pattern of mistakes that can be overcome with a change in your approach.

10. Find your passion
Trading is simple, but not easy. It will take great determination to master the markets so make sure you enjoy it. The love of trading will be the force to guide you to success.