How I Trade Stocks

After 200+ trading books and 13 years of trading that has accumulated some nice 6 figure profits I have many things that I have decided on in my trading. I am a discretionary rule based trend follower. I have found that I have a knack for seeing the big  picture and trends and I have navigated the market in the past ten years better than most mechanical trend following systems. I am a stock trader who uses in the money stock options to amplify my returns with small out lays of capital and reduced risk, I do not trade the more complex option plays I use options to replace stock in most instances. I am not against option plays like straddles and strangles or an option collar on occasions. I am a hybrid and composite of a few styles: trend following, CAN SLIM, option trader, Nicolas Darvas, and Alexander Elder. Many others teachings have played key parts in my development, Van Tharp, Dan Zanger, Paul Tudor Jones, Jack Schwager, Michael Covel, and Ed Seykota.

Here are 34 rules I trade by:

METHOD:

1. I am a trend hunter I want a stock that has the potential to move 25-100 points in my favor.
2. My top pivot points for trades is the 5 day EMA and the 50 day & 200 day simple moving average.
3. I play the long side in bull markets primarily and the short side in bear markets primarily.
4. I go long the top monster stocks in up trending markets.
5. I never short a monster stock above the 50 day moving average.
6. I short the biggest  junk stocks in down trends, the ones that are unprofitable and made major missteps with customers and investors.
7. I like to trade with all time highs or all time lows in stocks with in striking distance.
8. Moving averages are my best indicators.
9. I never have targets, I let a trend run until it reverses.
10. My watch list for longs is the Investor’s Business Daily IBD50.
11. I use Darvas Boxes at times to trade stocks.

PSYCHOLOGY:

1. I am not trying to prove anything about myself I am only trying to make money.
2. I will quickly admit when I am wrong when a stock moves against me enough to show me I am wrong.
3. I trade my own method, I do not trade others advice.
4. If I am losing and very unconformable with a trade I get out of it.
5. I trade position sizes I am mentally comfortable with.
6. I do not try to predict the future I look for what the chart is telling me.
7. I trade the chart not my personal opinions.
8. I am not afraid to chase a trending stock.
9. I understand that I chose my entries, exits, risk, and position size and the market chooses when I am profitable.
10. I do not worry about losing money I worry about losing my trading discipline.
11. I have faith in myself and my method.
12. I do not blame myself for losses.
13. I do not blame myself for losses where I followed my rules.

RISK MANAGEMENT:

1. I attempt to never lose more than 1% of my total capital on any one trade.
2. I NEVER add to a losing trade.
3. I use trailing stops to get out of winning trades.
4. I use mental stop losses to get out of losing trades.
5. I use position size to limit my risk.
6. I use stock options to limit my risk.
7. I know my biggest advantage in trading is small losses and big profits.
8. I never expose more than 6% of my capital to risk at any one time.
9. I understand the market environment I am trading in.
10. I understand the volatility of the stock I am trading.

Of course these are my 34 rules, everyone has to capture their own rules based on their risk tolerance and beliefs about the market and what works for them.