10 Rules for Every Trader

TVC:SPX   S&P 500 Index
I have on the wall next to my trading desk a list of 10 rules which I remind myself of every day. These are rules that I've come up with as a result of mistakes that I've made in the past. New traders often have misconceptions about what good trading looks like, or how a successful trader behaves. The barriers to getting into trading today are low, but the learning curve is still just as steep. You can save yourself considerable time and money by learning from others. I'm sharing this list mainly for new traders, but anyone can benefit. So, without further ado:

10 Rules For Every Trader

1. Price doesn't HAVE to do ANYTHING.
A common misconception among very new traders is that skilled traders are able to 'predict' the market. This is not true. This is not even possible. As a trader, your job is to deal in probabilities and risk-management.

2. Ranges are more common than breakouts.
In any given market, for every successful breakout and acceptance of new price, you will find 3-5 failed breakouts. New traders often prefer breakout trades because they happen fast, they're exciting, and there's a certain thrill to profiting off of a sudden move that you know caught a lot of other traders with their pants down. Remember that price action stays rangebound by default, until a demand imbalance pushes the auction process to a new range. Range bound trading is a boring grind, but it's also the easiest money you'll make.

3. You will be wrong at least 50% of the time. Keep your risk tight!
So, it's not necessarily true that you'll be wrong more than you are right, however as a new trader it's highly probable. This is however the mindset that I adopt when I am evaluating the risk of a potential trade. With any trade I take, I assume that I've got a greater chance of being wrong than being right. When you think about your trading this way, I guarantee that you'll tighten up your risk management game.

4. Check your ego at the door.
You're here to make money. That's all. The market is not here to offer you self-validation. The market doesn't care about your need to prove anything. Stay humble, and always keep the possibility of being wrong in the forefront of your mind.

5. Take what is offered.
This goes hand in hand with rule one and rule four. A common saying is 'follow the signals, not the cents'. I've let winners turn into losers in the past because I FELT (rule 4) like price action HAD (rule 1) to go farther before rolling over. Take what the market offers, and see the next rule.

6. There will ALWAYS be another opportunity.
FOMO (fear of missing out) is very real. It will also lead you to get cut to pieces in a leveraged market. If you missed your ideal entry, don't chase. You didn't just miss the last and only good trade in the world. Think of your risk capital like ammunition. Save it for tomorrow.

7. Winners add to winners. Losers add to losers.
What more can I say? If you're adding to a losing position with the intent to move your average entry price, you're already in trouble. Every time you think about adding to a position, I want you to hear this rule in your head. "Winners add to winners. Losers add to losers." Close that losing trade. Save your capital for the next opportunity.

8. Be greedy with your entries: fight for price.
If your trading thesis requires price to reach a certain level to validate your entry criteria, then wait for that level. Remember, don't FOMO into a trade. See rule six.

9. Be patient with your entries: Being early is the same as being wrong.
Similar to rule 8, no FOMO! Have you ever taken a trade and then been stopped out before the market makes the move you were expecting? You're trying to predict the market instead of reacting to what it is showing you. Slow down, and remember that acceptance of price is validated by both time and volume .

10. Hope is NOT a strategy!
This is the difference between trading and gambling. Good trading looks very boring. As a general rule of thumb, if it's exciting, you're probably gambling and not trading. If you don't have a solid 'if this, then that' thesis about the market you're looking to trade, then you don't have a trade to make.

These rules are meant to be guidelines for self-improvement as a trader. Write them down. Add your own personal rules. Print them out and put them where you will see them every day. Look at them before you trade and while you manage your positions. At the end of the day, evaluate how well you followed them and record your thoughts in a trading journal. I promise you that if you incorporate these rules into your trading plan, and make them a part of your thinking, you will find success as a trader.

Trade well everyone.