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Stock Market Trading: The 20 Rules of Engagement

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"Good traders know how to make money; great traders know how to take a loss," and 19 other truisms to trade by.

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With the Dow Jones Industrial Average (INDEXDJX:.DJI), S&P 500 (INDEXDJX:.DJI) and Nasdaq (INDEXNASDAQ:.IXIC) enjoying a stellar year, it's easy to get caught up in the race toward the bigger, better thing.

Over my 23-year Wall Street career, whenever I strayed from my discipline and started reaching, chasing or otherwise pressing, it came back to haunt me.

Slow and steady isn't sexy but it wins the race for a reason; when it comes to the financial markets, performance is a marathon, not a sprint.

As you stretch your legs and lace your sneakers, I'll share the guidelines that have improved my performance, in no particular order.

(And for more of such advice on trading, investing or managing your money, check out our new MV Education Center.)

The 20 Rules of Engagement

1. Have a game plan before stepping on the field.



Map the particulars of your strategy -- including the price parameters of your purchase and risk definition of your exit -- before you enter the market. Once you've assumed risk, focus on your trade; if you're not, you're at a competitive disadvantage.

2. Manage risk rather than chase reward.



If you understand what your downside is before entering a trade, you're less likely to overthink your position or panic out of the trade. Once that is quantified, the upside will materialize and you can adapt your reward parameters, if necessary.

For more pro trading and investing tips, check out Minyanville's new MV Education Center.
No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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