Trading Rules/Plan

As mentioned in my introductory post, I’ve had a set of ‘trading rules’ that I’ve tried to follow to the best of my discipline. However, as they were my first attempt at creating such rules, I knew they were nowhere near perfect. They were thus expected to evolve through daily application, with the overall intention of arriving at a ‘consistently profitable‘ and ‘perfectly suited to my style’ set of rules.

So I spent some time tonight reviewing the old set of rules and adjusting them to fit the patterns of my latest successful trades. While a couple got thrown out, most were either reworded or made more specific. Here, then, are the results:

RISK

• Never more than 2%/trade, regardless of position size
  • Standard: 2% = 30% loss in position
  • “All-in”: 2% = 100% loss in position
• Enter trades at support/resistance/trendline
• Buy breakouts only after re-test/consolidation
• Never hold through earnings
  • Unless the trade is on volatility rather than the underlying stock

REWARD

• Hard Rule: Sell 1/2 of position at 100% gain.
• Always have a stop – trailing; line-in-the-sand; ‘written down’ – never just ‘mental’
• Set targets; if reached, sell to guarantee breakeven
• Sell on weakness in Stochastics/price action.

ROUTINE

• Enter new trades in the morning (before work)
• Use day limit orders for rest of the workday
• Work permitting, keep an eye on the market
• Examine all positions ~20-30min before close (lunchtime)
• Go through watchlist nightly; identify trades for next day
• Always look for ways to improve; learn from others’ mistakes

STICK TO THE PLAN!

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