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20 Rules for Trading Success

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Michael Lee of T3Live.com shares his beliefs on how to win at trading.

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1. Create a game plan and stick to it! You should have a reason for entering each trade and always have a stop-loss price and a level to take profits before you enter a position. In the long run, discipline is the key to consistent success.

2. You must learn to adapt quickly to changes. If a short-term trade isn't working, don't hesitate to switch sides. The market and stocks can change very quickly, and you must be able to change with them. Don't be stubborn!

3. Don't get married to trades! If a stock isn't working for you and you are losing money, you don't have to make it back in that stock. Likewise, don't force a trade in a stock only because it has made you money before. Always just trade the best set-ups.

4. Do not try to bottom fish or pick tops. The trend is your friend; when you find it, follow it. Don't trade with a bias because you think something should or shouldn't happen; let the stock tell you what its next move will be. Trying to identify tops and bottoms is a losing way to trade in the long run.

5. Accept losses; they are part of the game! Prepare yourself mentally and emotionally for this eventuality. Try to limit losses when you are not on top of your game and take a break if you need one.

6. Keep it simple. If a trade is working for you, stick with it!

7. Stay confident and positive. Don't hesitate to take a step back or ask for help if you are not feeling good about your trading.

8. Be consistent with your game plan, size, and execution. Don't make a winning trade in 300 shares and a losing one in 1,000! Keep your tiers consistent and stick to your game-planned trades.

9. Stick to your trade, and believe in your preparation! If you like a trade set-up, stick with it until it works or is no longer compelling. Even if it doesn't work the first couple times, be patient and keep it on your radar.

10. If you have an out in a losing trade, get out! The first stop is the cheapest stop in a losing position. Do not give in to the temptation to let a losing stock run because you will usually end up getting killed. Small losses are part of trading.

11. When you are wrong, admit it and move on. Don't waste time with a trade that is no longer compelling.

12. Give your trade time. If you believe in the trade, wait for it to play out and stick to your game plan.

13. Never let a winning trade turn into a losing one! Take profits when you can; you can always get back in later.

14. Try to capture the full move of a stock. While it is important not to let winners turn into losers, you will make your good money from capturing larger moves. It is ok to give a little back if you have made a lot on a trade, but know when to let it go.

15. Recognize the type of trade it is. If it is a swing trade, don't impulsively get out. If it is a quick trade, don't get greedy. If it is a slow moving stock, be patient. If you are on, push yourself. Always be aware of the type of trade you are in and act accordingly.

16. If you are feeling good and happy about your day, it is ok to relax and enjoy the money. Don't turn a great morning into a losing day. Catch yourself; it's not worth it. In addition, if you have a bad morning and make it back to flat or a little green, call it a day and declare victory! If you push it, you are likely to end up back with a losing day.

17. Trade the same way whether you are up or down. Traders tend to press when they are down and get careless when they are up. Stick with what got you there.

18. Trade stocks that are in play. Don't trade something just to trade it; make sure there is a catalyst. Volume is a trader's best friend.

19. Stick with winners and don't add to losers. Make sure you capture big moves in winning trades and get out of losing trades quickly.

20. Trust yourself! You will always make more money trading your own strategy than someone else's.

Editor's note: This story by Michael Lee originally appeared on T3Live.com.

To read more from T3Live, see:

Time to Take Profits or Stay the Course?

Morning Call Express: May 6, 2013

How Far Can This Bull Market Go?
Check out T3Live.com's Virtual Trading Floor to follow these traders and their live portfolios on real-time throughout the day! Take a free trial.
No positions in stocks mentioned.
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