I am having the best year trading that I have ever had, I am currently up 57% year to date on my brokerage account. Of course I am not an overnight success and have been wrestling with the markets for 13 years losing money and paying tuition at the beginning of my trading career and then making healthy returns over a 9 year period of time reaching into the six figures. I have read just about every major trading book every published and reviewed them at Amazon.com. So what have I learned through the dot.com run up and bust, wars, terrorist attacks, recessions, panics, technology stocks, manias, and bubbles? You learn valuable lessons when you lose enough money in a matter of months that could have bought a car and then make enough money in a few years that could by a house.
Here is what I have learned in my thirteen years of battle in the stock market.
- The most important thing you must know is whether you are in a bull market, bear market, or volatile market, this determines how you should trade it.
- Do not short stocks in a bull market the big money is on the long side. You are missing easy profits and great opportunities.
- Only trade the very best stocks in the markets, real companies with huge growth in sales and earnings along with innovative products.
- Only risk 1% of your total capital on any one trade idea with position sizing and stop losses, this will determine whether you make it or not in the long term.
- Do not set profit targets for your trades, wait for an exit signal after a reversal, this has made me more money than anything else.
- Become an expert in the stocks that you trade. Know the chart history and trend patterns in price.
- Instead of predicting what will happen always look at what is happening and play along.
- Admit when you are wrong quickly, the quicker the better.
- If you do not have an exit plan when you enter a trade then you really have no plan. Trailing stops and stop losses are good friends.
- Have so much faith in your system that your stress level is low.
- To make more money, trade less.
- To make more money, risk less.
- Find a style of trading that fits your personality and makes you money.
- Never, ever, ever add to a losing trade.
- Always, always, always try to add to a winning trade early.
- Add risk when you are winning, reduce risk when you are losing.
- Read a good trading book every two weeks if you are serious about trading.
- Study the greatest traders in history and how they made their millions.
- Study charts religiously.
- Only keep what works and makes you money, discard what does not.