Trading Rules

Here are my rules I have come up with so far. Most of these concepts are adapted from Jeff Kohler's blog and tailored to fit my trading style. I will discuss the rules under the list.

1. Plan the trade, trade the plan. Determine entry point, exit point, price target and time needed before entering the trade.

2. Be patient, wait for low risk entry points, these higher probability trades will be worth waiting for.

3. Only risk 1-2% capital per trade(as account grows position size will naturally grow as well).

4. There will always be more opportunities, if a trade is missed wait for another entry point or better trade altogether.

5. Take trades that are the logical easy money, that you have conviction about.

6. Do NOT trade in the first hour unless absolutely necessary.

7. Do not put on a full position unless it is a very low risk entry point and risk is clearly defined.

8. The trend is your friend, do not go against it unless a pattern confirms reversal.

9. Cut losses short when confirming break of support, let winners run unless chart or news of company says otherwise.

10. Trade(in general unless situation determines otherwise) one strike out of the money options with appropriate time for target.

As a trader all we should really be concerned about is probability. How can we gain an edge over the market in the long term? We do this by only getting into high probabilty situations with defined risk. If we create a plan before we enter a trade, emotion should be essentially eliminated. This is because we already know how much we may lose and it is within our risk tolerance. If we know we are only risking 2% of our capital and we can rest easy knowing that is likely all we will lose.

How can we increase our probability of success?

We cut our losses at 2% always and let our winning trades go until they reach our targets, unless they signal an early exit or break of trend.

We only choose trades with higher probability, trade with the trend, wait for confirmation before taking trades, and trade relative strength or weakness stocks.

We diversify our portfolio with multiple higher probability low risk trades, with both put and calls plays and hedges. For example if we have 10 positions on at once that gives us a better chance of being right at any given time.

ALWAYS follow your rules! The purpose of these rules is to be able to trade almost mechanically without emotion. Most people fail because they hope when they should fear and vice versa, since we already have a plan and rules we don't need hope or fear, we simply follow our rules knowing probability is in our favor in the long run.

These are my rules, feel free to use them or change them to make them your own, but make sure you take responsibility for your own trades.

As I learn and adapt these rules will be updated as I feel appropriate.