David’s Rules of Trading

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I’ve learned the hard way by making mistakes that cost me money. I want to share these with everyone and also want to write these down to remind myself. This is an on-going list that I will keep adding to as I learn more about this game.

1. Always limit your losses!
Never be stubborn and try to wait it out. Capital preservation is key to trading success. I bought NMX at 143.8 and I should have taken the lost when it was $142 since it hoovered there for 5 minutes and I could have sold. There can always be another trade at a different level. Instead, I ended up selling at 132.8 and lost the biggest $ lost of my investing career of $5500 (at the time).

2. Focus!
This is applicable to the people that work and am trying to do this part time. You need complete focus! I can’t believe I was trying to trade at work at the time and I could have made a lot less mistakes if I was in a quiet place where I could concentrate.

3. Trade with money that you are confortable losing.
Do not trade at $$$ levels that you were not comfortable with. Up until this point, I was investing stocks from $5,000 to $15,000. Then with GameStop, I started to trade with $20,000 and it was already over my comfort zone. Then with Nymex, I was trading with $50,000!!!! This was easily many times what I was comfortable with doing, and emotions took over when the trade did not go my way. I ended up not only messing up my capital with one stock, but also my other holdings in the portfolio too since I sold many stocks in a severe panic mode.

4. Do not chase momentum when you see a quick run up (or down)
The stock market is unpredictable in the very short sense. For the majority of us, it is hard to see which way the stock is going to go the next few minutes unless there is a major catalyst pushing it one way. If you try this, remember to do this at your own risk!

5. Trade with strong reasons!
Reason out your trades / investment and make sure that you can at least convince yourself that the stock price will rise (if you are long on the stock) or will fall (if you are shorting it). If it doesn’t even make sense to you, then you are just gambling that it will turn right and your money will have a better chance doubling by putting it on “red” on the roulette table.

6. Take a break when you need it!
At times, you might feel upset about a bad trade and should take a break. Just remember that no one makes money everyday, let alone on every trade. If you feel that you are getting emotional because of a lost, just step away from your computer for a while. Take a walk, or even the day off. Never trade when you don’t feel 100% ready for it. Use this time to refresh yourself for another day. Just remember to keep it fun!

Tagged as: Investing

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