TRADING RULES

1.      The most important Rule of them all PROTECT YOUR CAPITAL!  there are always opportunities to make money EXCEPT when you don’t have any more capital to trade with!

Risk management and knowing when to stop and take a break is something all successful traders do! 

Protect your MIND capital! IF a trade is doing nothing or bleeding out, consider closing it and opening it again later if necessary, a losing trade takes away mental capital for a future trade as you are not mentally prepared to take on more risk. ( if you want a more extensive explanation I recommend you read "Unknown Market Wizards: The Best Traders You've Never Heard Of" By Jack D. Schwager).

 

2.      Trade the setup and NOT your PnL.  Size accordingly( 2-3% of your trading account is a good rule of thumb especially if you are just starting).

If I buy OTM (calls or puts)/short-term expiration, I sized my position so I don’t mind if they go to ZERO. 

For ITM or ATM, I use the Delta and a STOP LOSS to calculate position size. (side note with options, especially if not very liquid, I don’t use an actual stop loss but have a number in my head where I would get out). 

 

3.      Setup's probability of success varies depending on the market.  I can tell you from experience, H&S, C&H, etc etc they work BUT sometimes their probability of success is higher than others. REMEMBER THIS!

IF you are serious about being a trader there will be times your conviction will be tested! 

There are 2 options for what to do in such cases:

a. You can limit the number of trades you do per week.

b. You “punish yourself” (favorite quote from Stan Druckenmiller) by decreasing your size and "EARN" your way back into your usual size again. (most new traders do the opposite and that is how they blow up their accounts). 

A woman looking at charts on the screen