10 Rules for Trading
Stockscores.com Perspectives for the week ending March 27, 2011
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Calgary Trading Workshops
Albertans, register now for the Stockscores introductory workshop to be held in Calgary April 11th. During this one hour presentation, Stockscores.com founder Tyler Bollhorn will take you through the basics of chart reading and how to apply simple techniques to improve your performance in the market. To register for the 2:00 session, click here. For the 7:00 session, click here.
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In this week's issue:
There are two stock trading classes coming up in May. The StockSchool Pro class is what most people need, it focuses on learning the Stockscores Approach to trading stocks. You can view an information page on that class by clicking here.
For those who have already completed the StockSchool Pro class and who have an interest in becoming a professional day trader, I am teaching an Advanced class for the first time. This class will focus on how I use advanced charting programs to identify opportunities, how I create new trading strategies and more advanced trading techniques. I recommend that attendees be serious about wanting to trade and have decent computer skills. For more information, click here.
Here is a list of 10 rules that all traders should keep in mind, whether they are just starting out or have been trading for a long time.
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.
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Strength is returning to stocks as the fear factor comes out of the market and people turn their focus back to improving earnings and a strengthening global economy. Friday's market action brought a break of the pull back that began a few weeks ago, so the bull market trend is back on.
However, since there has been a good deal of unrest in the Middle East over the weekend, I will be watching the markets early next week to make sure that this short term downward trend line break can hold to confirm Friday's market action.
Most of the strong stocks this past week were lower priced stocks that were moving on their own particular story. There was general strength in the Gold and Energy sectors which continue their upward trends.
Here are a couple of low priced mining stocks that are showing decent chart patterns and have good potential to continue higher in the weeks ahead.Back To Top
1. T.ORE
T.ORE broke through resistance with good volume on Thursday and saw little profit taking on Friday. The stock has good potential to continue higher provided support at $3.95.
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2. V.PEM
V.PEM has been trending sideways for eight months but broke to the upside on Friday through resistance. Support for the stock is at $0.54.
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References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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