Rules are {a significant} {section of} life. They help us establish meaningful boundaries.
{With regards to} {very cheap stocks}, trading rules are everything. Personally, I {make an effort to} keep things simple. I follow {exactly the same} trading rules I teach all my students.
{If you need to|In order to} get good – {excellent} – at {the next} rules, {make an application for} the Trading Challenge today. It’s {effort}. {It may be} the hardest thing you’ve ever done. But as {a few of} my students will {let you know}, {it could} potentially {grow to be} the smartest thing you’ve ever done.
Table of Contents
17 {TRADING} Rules
{In this article}, I’m counting {right down to} #1. Kinda like Letterman {i did so} with his {Top} 10 lists. {I’ve} {some more} than him here … but hey, {that is} {important info}. Here we go.
#17 {Adhere to} Your Trading Plan
{It is a} high-level, big-picture, and strategic trading rule. {The reason why} {a lot of people} fail at trading is that their preparation sucks. Preparation is key. {Just how} {can you} prepare?
{Apart from} studying {constantly} …
You {create a} plan.
Now, {I understand} {you can find} probably people {scanning this}, thinking, “Cool. {Create a} plan. {How do you} {do this}? And what {ought to be} {in my own} plan?”
Those {are} good questions and beyond the scope {of the} post. {Have a look at} Pennystocking Framework Part Deux and Trader Checklist Part Deux for more {on how best to} plan your trade.
{An improved} option {would be to} join the Trading Challenge. It’s a badass trading education and {where one can} {learn to|figure out how to|discover ways to} {develop a} trading plan.
{The main element}, {which} is huge, {would be to} {adhere to} your plan.
#16 {ALWAYS UTILIZE} {an end} Loss
{An end} loss can protect you from losing {a lot more than} your planned risk capital. {Quite simply|Put simply|Basically}, assuming you made a trading plan, {you understand} {just how much} you’re {ready to} lose on a trade. {You’ve got a} predetermined exit point.
But {I wish to|I would like to} clarify something: I don’t use electronic stop losses {exactly like} I don’t use market orders. {I take advantage of} mental stop losses as a trading rule.
{That is} super important, so {give consideration}. If you’re in a trade {also it} goes wrong, {you would like to|you need to|you wish to} {escape}, right? But {imagine if} there’s a panic? {Imagine if} {the purchase price} falls 50% in {ten minutes}? {You need} out, right?
{Think about} it {such as this}: Say you set {an electric} stop loss {within the} trade. {What goes on} if the stock falls so fast your order isn’t executed {once the} stop loss is triggered?
Eventually it gets executed – but as {market} order. {Quite simply|Put simply|Basically}, your order is executed at {the marketplace} price, {that will be} nowhere near your trigger.
With a mental stop loss, if {the purchase price} is dropping fast, {it is possible to} change your exit price by {the tiniest} amount {essential to} close {your situation}. You can {enable} some slippage. {It looks like} you’re losing more {this way}, but it {can help you save} a wad of {profit} a fast-moving trade.
So, {work with a} stop loss – but {make certain} it’s a mental stop loss. And understand {there could be} slippage and that’s OK. {Adhere to} your trading plan. {A little} loss in a fast-moving trade {is preferable to} getting decimated {as you} have {market} order {set up}.
Big caveat: {In the event that you} can’t be at your laptop {through the} trade, {also it} suits your trading strategy, {it may be} good {to create} {an electric} stop loss. It’s not {just how} I trade, but {you can find} legitimate {known reasons for} {carrying it out}.
It’s all perspective, right?
#15 Keep Trading in Perspective
{The very best} {of the greatest} {in virtually any} field {aren’t} perfect. {Consider} baseball for {another}. {Even though you} hate baseball {you may} {understand that} a great batter gets {popular} about 30% {of these} at-bats. {Which means} they fail {a lot more than} two-thirds {of that time period}.
Here’s another example: NBA-legend Michael Jordan’s career field-goal percentage was 49.7%. His career three-point field-goal percentage was 32.7%. We’re {discussing} arguably {the best} basketball player {ever}.
{Needless to say}, there’s {much more} to basketball than shooting, and there’s {much more} to baseball than hitting. {Exactly like} there’s {much more} to trading than {just how many} trades you win or lose.
{The abilities} I teach my students are skills {that may} last {an eternity}. Keep trading in perspective. Keep your emotions {from it} {whenever you can}. {Be ready for} wins and losses. Don’t expect every trade to work perfectly.
{Do that} instead …
#14 Treat Trading {Just like a|Such as a} Business
{Even though you} {opt to} trade part-time while holding down a full-time job, {you have to|you should} {address it} {just like a|such as a} business. {In the event that you} don’t {go on it} seriously you’re {improbable} {to review} up. So {address it} {just like a|such as a} business {atlanta divorce attorneys} sense.
What {can you} do {in the event that you} decided to {take up a} business {privately}? {Can you} just start throwing money at something and {expect} the best? {There are many} people who {do this} and fail miserably. {You can find} {way too many} traders who get absolutely decimated {carrying it out}.
{How can you} treat trading {just like a|such as a} business? {Think about} it {such as this}: {In the event that you} {take up a} business {you anticipate} to incur expenses. Plus, most businesses take {many years} {to show} a profit.
Then {you can find} tax liabilities, {extended hours}, stress, uncertainty … and a laundry {set of} other things {to take into account}.
Trading {is really a} business. {Address it} like one. Respect it – {that is} another {method of} saying respect yourself {as well as your} hard-earned cash enough to approach trading {just like a|such as a} professional. Be {ready to} do what others aren’t {ready to} do.
#13 {Create a} Trading Methodology {Predicated on} Facts
Sometimes {I wish to|I would like to} scream {near the top of} my lungs when I {start to see the} scam artists and garbage {on the market}.
Don’t {search for} some unicorn, mystical, magical, genie-in-a-bottle trading method. It doesn’t exist. You don’t have {to become a} genius {to get this done}. I’m not that {proficient at} math, I’m not that smart, and I don’t {involve some} link with the cosmos that helps me trade successfully.
{How do you} {take action}, then? I study like mad. I play it safe, and I look at patterns {which have} happened {previously|during the past} to see if they’re happening again. I {search for} facts {rather than} {searching for} something that’s not there. I follow this {group of} trading rules.
Where {is it possible to} find facts? {Research your facts}. Study the charts. {Consider the} SEC filings. {Browse the} news {in regards to a} stock. And please … {in the event that you} get information {from the} chat-room {or perhaps a} {news release}, don’t {abide by it} blindly. Do more research.
I wasn’t gonna mention this, but it’s sorta funny so I’m throwing it {on the market}. {Not long ago i} read {this short article} suggesting {a higher} percentage of Americans can’t tell the difference between fact and opinion. Funny and totally scary {simultaneously}.
I don’t mean to be derogatory about people. {I simply} want {one to} {understand this} clear {in your thoughts} {as the} market is unforgiving. {It’ll} destroy you {in the event that you} {make an effort to} trade {predicated on} anything {apart from} facts. {Despite having} facts you’re gonna lose some trades.
#12 Protect Your Trading Capital
It’s impossible to trade a blown-up account. What do {After all}? {In the event that you} lose {all of your} money {as you} didn’t follow your plan and had no risk management system {set up}, then you’re out.
Sure, {you can} save {additional money} and {fill up} your {take into account} another try. But {just how many} times {is it possible to} do this, {from the} psychological perspective?
{How can you} protect your trading capital? {Create a} plan and {stay with it} (trading rule #17). {Work with a} mental stop loss (trading rule #16). {Focus on} {another} rule, {aswell}.
Heck, this entire {set of} trading rules {will help you} protect your trading capital. Print it out and put it {through to} your wall. Read it {each day}.
#11 Never Risk {A LOT MORE THAN} {IT IS POSSIBLE TO} Lose
{You would like to|You need to|You wish to} hear {among the} dumbest things any wannabe trader could ever do?
Here goes …
{Among the} dumbest things anyone {can perform} {would be to} trade {making use of their} rent money, {mortgage repayment}, food money, or {any} cash {they have to} live. I’ve {heard about} people {carrying it out} – {wii} idea.
But it’s {not only} {the fundamentals}. Don’t ‘borrow’ money from another {section of} {your daily life} for trading. Never risk {a lot more than} {it is possible to} lose. Period.
Also, don’t use leverage to trade. I never trade a leveraged account. The closest I come is when I short stocks and that’s different. I’ll {reach} that in trading rule #6.
{Section of} your trading plan {will undoubtedly be} risk management. {Among} my students wrote a killer book (I wrote the forward) called “{THE ENTIRE} Penny Stock Course.” It has {some very nice} {information regarding} risk management.
{I’d} be doing you a disservice {easily} didn’t mention the Trading Challenge again. {As you} of my students, you’ll create {your personal} risk management system and {find out about} position sizing. Plus, you’ll {get access to} a mentor {who is able to} {assist you to} understand appropriate {degrees of} risk.
#10 Track Everything
Remember, it’s said that {around} 90% of traders fail. It’s {due to a} {insufficient} preparation and {too little} being meticulous.
My star student, Tim Grittani, tracks every trade he uses with spreadsheets. {Most of} my top students {do that}. They track everything and follow trading rules – {they’re} meticulous.
Why track everything?
It’s {the method that you|the way you} learn and {the method that you|the way you} measure. How else {do you want to} {know very well what} percentage {of one’s} trades are successful? Which setup {can be your} best, most successful setup? {Think about} your worst?
What would happen {in the event that you} dropped your least successful setup and {centered on} your most successful setup?
{I am hoping} this {is practical}. Track everything. Keep a trading journal {and in addition} keep a spreadsheet with {home elevators|info on} every trade. {As time passes} {this can} become {among} your {most effective} resources.
#9 {Focus on} Volume
If there’s {insufficient} trading volume {you may get|you will get|you can find|you can obtain} stuck in a trade. {There needs to be} enough action for the stock {to remain} liquid. {In case you have|For those who have|When you have|Should you have} {a posture} of 10,000 shares {nevertheless, you} can’t sell it, you’re stuck.
Simple, right? So {for me personally}, anything under 50,000 shares is too illiquid. Even that’s low.
Ideally, I {search for} stocks trading one million, {as well as} {2-3} million shares on {your day}. That way, {easily} have {a posture} of 10,000 shares, I’m {a part of} {the marketplace}.
You don’t {wish to be|desire to be} {a lot more than} 1% of {the quantity} being traded that day. If you’re {a lot more than} that, and things go {the wrong manner}, {you may get|you will get|you can find|you can obtain} heavy slippage {attempting to} exit {your situation}.
#8 Don’t Put {AN EXCESSIVE AMOUNT OF} Stock in Promoters
Puffed-up {pr announcements} can promise massive gains … but if it sounds too good to be true, it probably is.
Promoters {receives a commission} {to market} stocks. It’s their job. {Your task} as a trader {would be to} study, prepare, build your knowledge, then {turn into a} self-sufficient trader. {Section of} your job {would be to} understand the role of stock promoters. They aren’t {friends and family}.
Does this mean {you must never} {focus on} their promotions? {Just as much as} I’d {prefer to} say {you need to} completely ignore them, they’re {part of} the penny stock landscape. {You should know} what they do, how they {take action}, and {how exactly it affects} price action.
Then, and only then, {do you require} the information {in your favor}.
{Once you} read {something similar to} this:
“{Utilizing a} proven system {which includes} {resulted in} gains of 2,987% in his personal portfolio, investment wonder kid [insert name of scam-artist stock guru] is sharing the 3 best stocks {you need to} own for {the largest} profit opportunities.”
Know this:
{The probability of} {some of} those stocks making those {forms of} returns {is most likely} {less than} winning the lottery. {You may} {aswell} toss {your money} in {the bathroom .}. It’s BS!
But {imagine if} you were {to create a|to produce a} play on the inevitable fall {once the} pumped-up stock comes crashing {back again to} earth? See {why}? {Once you learn} what they do, how they {take action}, and {what goes on} {whenever a} stock gets pumped – that’s valuable information.
#7 {Escape} Trades {IF THEY} Don’t Go {THE RIGHT PATH}
Don’t {go out} in a trade when it doesn’t go {the right path}. {Obtain the} hell out! This trading rule goes {alongside} #3 and #1 {approaching}.
{That one} {could be} difficult. Sometimes you’re early in a trade. Your trading thesis is right, {nevertheless, you} already closed {your situation} {since it} went {the wrong manner} first. {The thing is} that {you then} second guess yourself. Don’t {do this}!
I can’t {let you know} {just how many} trades I’ve made where if I’d just held on {just a little} longer the trade {will be a} good one. {Nevertheless, you} know what? {You can find} more – {much more} – where {easily} hadn’t cut losses quickly I would’ve gotten smacked in {the facial skin}, {destroyed}, decimated …
It’s {section of} your risk management. This trading rule protects you. {It is possible to} save more {to avoid} losses than what you’d gain by {residing in} a trade gone wrong. {That one} takes self-discipline. Don’t overlook it. There {will be} another trade.
#6 {Have the ability to} Go Both Long and Short
{In my own} {start} of trading, I didn’t {know any thing} about shorting stocks. Shorting {is really a} {more complex} strategy. My advice {would be to} join the Trading Challenge and study hard. You’ll {learn to} short, but first, you’ll {learn to} go long.
Going long means you open {a posture} expecting the stock price {to move up}. When it {rises}, you sell for a profit. {This is exactly what} most people {think about} {if they} first consider {learning to be a} trader.
Short selling {differs}. You expect {the purchase price} to {decrease}. You borrow shares {from your own} broker and sell them {immediately}. Then, assuming {the purchase price} drops, {you get} shares at {the low} price {to cover} back the broker. Your profit {may be the} difference {between your} shares you sold and the shares {you purchased}.
Sounds cool, right? Except {it is possible to} lose {a lot more than} your original stake if {the purchase price} goes up {and you also} {need to} cover the difference by purchasing the shares at {an increased} price.
{I really believe} {you need to be|you ought to be|you have to be} {in a position to} go both long and short. Being versatile {in this manner} means {it is possible to} play {in various} {forms of} markets. {It is possible to} {benefit from} those pump-and-dumps and morning panics.
{Nevertheless, you} {have to} study and practice paper trading with StocksToTrade.
#5 {Concentrate on} Risk-Reward
With {very cheap stocks}, it’s {not only} “what’s my risk?” It’s also “can this news keep spiking this stock?” It’s risk vs reward.
What’s the potential downside and what’s the potential upside?
No stock is ever worth throwing in the towel {on your own} risk. I miss so many run-ups because I’m unwilling to chase. {As soon as you} start chasing, {as soon as you} throw your risk measurement out the window, you can’t protect your downside.
That brings me to my next trading rule …
#4 Never {Love} a Stock
That penny stock {you imagine} is gonna {function as} next Microsoft? I’ve got a hot tip {for you personally}: it’s not. {Many of these} companies will ultimately fail. That’s why they’re listed on the OTC markets or priced so low.
Look, {most of us} want to {discover the} next big thing. But {come on} – you’re a trader (or {learning to be a} trader) {to produce a} lifestyle {on your own}. {The opportunity} that you’ll stumble on {another} big thing, the ‘one-stock retirement plan,’ {is similar to} zero percent.
{You should}, find interesting companies with cool product ideas. But don’t buy and hold that stock hoping {it’ll} go from $1 to $50. That’s just {requesting} trouble.
Does it happen? Yes, {needless to say}. {However in} the meantime, {you will be} trading and building your account {rather than} hoping.
Hope {isn’t} a trading strategy. Well, it kinda is … but it’s a losing strategy.
#3 Don’t Let Your Ego {Block the way}
This goes {alongside} trading rule #4:
Ego {can be your} enemy. Approach trading {just like a|such as a} Zen master.
Seriously. Find some peace {along the way}: {Adhere to} your plan {and obtain} out when it’s appropriate.
{In the event that you} let your ego {block the way}, you’ll make trades {you must never} go near. You’ll {stay static in} positions {longing for} something {to improve}. You’ll chase trades either to {have the} adrenaline rush or {with the expectation} {to getting} even. Stop that. That’s bad.
#2 Every Trade {Is really a} Lesson
It’s {a difficult} fact: {You’ll} lose some trades.
{Just what exactly} {in the event you} do {once you} lose? {Find out} what happened. Learn the lesson. {Think about} {once you} win? {Ditto}: What happened, why was the trade successful?
Keep a trading journal. {It’ll} become your record of the ‘how and why’ {of each} trade you make. {It will} help you {turn into a} self-sufficient trader {considerably faster}.
{In the event that you} haven’t started trading a live account yet {nevertheless, you} are paper trading, start your journal now.
#1 Cut Your Losses Quickly
{It has} always been {and you will be} my number-one trading rule. Cut losses quickly. {That is} paramount!
{I JUST} made three trades with {exactly the same} stock (Nasdaq: MRIN). {The initial} trade went perfect and I made a profit of $2,847. I made a video lesson {about any of it} – {you need to} {take a look}.
{The very next day} I traded the stock again {nonetheless it} didn’t do what I expected. Instead, {it had been} a {lack of} $330. {Exactly the same} day I tried again: another {lack of} $196.
My point? I cut losses quickly {once the} trade went {the wrong manner}. The {benefit from} {the nice} trade was much {larger than} {the tiny} losses. Protect yourself!
Trading Challenge
{Desire to} {learn to} put {from} this post into action? The Trading Challenge {can be an} incredibly comprehensive course. From planning your trades to {how exactly to} cut losses quickly, it’s {filled with} potentially life-changing information.
Plus, you’ll {access} live webinars, recordings of past webinars, and {an excellent} community of traders. A Trading Challenge mentor {can help you} develop your skills.
Imagine the freedom {to be} {in a position to} travel {the planet} and trade {from your own} laptop …
{UNDERNEATH} Line
These 17 vital penny {trading} rules {should} be in {your brain} as you trade. {You intend to} get where these rules are second nature. Meticulous competence.
My suggestion: Print this out and review it daily. {At least|At the minimum}, bookmark it and review these trading rules {each day} until they make complete sense. Then go deeper and {make an application for} the Trading Challenge.
Seasoned traders: {What exactly are} your trading rules? New traders: Which {of the} rules {do you want to} {invest in} memory today? {I want to} know in the comments. {I enjoy} hear from you!