The Rules of Trading

by Derek Schimming

Patience & Discipline – Always be patient and trade with discipline, plus never think the market owes you something. Embrace the fact that some of your trades are going to lose money. It is how you handle the mistakes, that is the key to long term trading success.

Set a Stop Loss – Establish an amount per trade and per day, and stick to it. NO QUESTION! Goals - Set daily & weekly goals, and stick to them. Start with a small goal and raise the amount each month after you have consistently achieved your target. Increase the size of your trades and do not expect the market to allow for bigger trades.

Trade Smart - Do not look for trades, let them find you. You do not have to be in a trade, so be selective and wait for the better looking trade opportunities. It all goes back to patience and discipline, knowing the trend and not forcing the issue.

Consistency – Trading success is all about consistency, base hits and scoring 1 goal at a time. You should NEVER be looking to make that homerun or trying to score 4 goals at once by finding that one massive trade. You should strive to be consistent, because consistency will afford you the ability to be fortunate and land the BIG game winner from time to time. Making 5 base hits will always add up to more than just 1 homerun, and taking consistent shots on goal will in fact win the game.

Know the Trend – The trend really is your friend and can compensate for a slightly poor entry. Even if you plan to trade contra to the trend, you need to know that you are doing so and trade accordingly.

Step Back - Take a look at what is actually happening by looking at longer term views and work your way in for more detail.

Be Early – It is better to enter a trade early with potential and being wrong, then to be right and enter the trade late but with no more potential. When you can identify the trend correctly and you seek proper trading tools and entry techniques, you can trade with confidence and enter your trades at the correct times.

Add to Your Winning Positions – You should look for the opportunity to add to any winning position. However any addition must be handled like a new trade and pure entry. So ask yourself; “If I wasn’t already in my current position, would I enter this new trade right here and right now?”

Never Add to a Losing Trade – Just Don’t Do It! The best way to never have the desire to add to a losing position is to never sit in a losing trade beyond your stop discipline. Do not use losing strategies like “doubling down” or “dollar cost averaging” because they only set you up for trading failure. Establish your Stop Loss order, be firm and hold to it regardless!

Never Chase Any Trade – If you miss the entry do not worry, there will always be another trading opportunity.

Recognize What is Actually Happening – Learn to understand and identify the 4 market stages and the 7 market events which comprise those stages, plus their 4 distinct psychological states. The market always follows the Gaussian Curve, so you should know where you are in the cycle at all times and identify the stage and trend before you enter a trade.

Learn to Anticipate – Anticipate the possibilities and ONLY act upon reality!

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