Rules for Trading

A few important rules to follow when it comes to trading:

1. Always have a stop loss set in place. If you cant watch your stocks in real time, then this is a must. There can be a random news event that makes your stock move in the undesired direction so you have to be prepared for situations like this. If you use a mental stop then make sure you get out when it tells you.

2. Never remove your stop loss! Your first stop is usually the best one even if it shakes you out of your position. Remember, you can always get back in if it sets up again. Small losses are better than big losses.

3. Don’t chase! If you miss a stock for whatever reason and its trading much higher than the original entry, then just let it go. If the stock pulls back and gives you a second chance to enter you can do so then. But whatever you do don’t chase a second or third day move! If you miss a move then just be OK with it, but it’s not OK to chase.

4. Trade with small risk. I like to use the 1% rule when it comes to swing trading. The 1% rule means to only risk 1% of your trading capital per trade. Example: You have a $100,000 trading account. Then on every trade you are allowed to risk only $1,000. Lets say you plan to buy stock in XYZ and the trigger price is $33.50 and your stop price is $2 dollars lower. You can only purchase 500 shares worth so that your risk is no more than a $1000 dollars.

5. New traders should risk less than 1% of trading account. The reason is simple because you need to master the emotional side to trading as well. So better to learn with very small risk till you fully get the hang of trading.

6. Don’t dwell on small losses, use them as learning lessons. It’s important to be realistic in trading and being realistic means there will be small losses. So get over them quickly, assess what went wrong, adjust and adapt.

7. Earnings. Every quarter there are earnings announcements on individual stocks with different announcement dates for each stock. As swing traders we do not hold any position that is about to report earnings. Prior to entering any trade always check when the next earnings date is and make note of it so you don’t forget. The reason why we as swing traders don’t hold into earnings is because of the massive gap in price that can occur. If we are long and the stock gaps down then we will have a huge unnecessary loss that can make it very difficult to recover from.

8. Discipline. Without discipline all of the above won’t matter. It is crucial to have discipline in trading to do whats necessary. If you don’t have discipline, then you will trade on your emotions and that never ends up well. Discipline is what separates the professional traders from the amateurs.

9. There times to be aggressive and there are times to ease back. There are periods in the market where setups slow down and nothing is really good to take action on. My main goal for you is to provide quality setups and not quantity. This is important to understand as a swing trader to achieve the best returns possible. Choppy markets= choppy returns. However, when the markets are good then there will be plenty of quality setups to be posted and traded!

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