iBankCoin
18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
18,447 Blog Posts

Here are Some Basic Rules to Follow as a Trader

During my years as a financial advisor, I dealt with a lot of high net worth investors. Their investment behavior was often rigid and structured. The younger investors tended to take on more risk, thinking they needed to make up for their lack of net worth, ironically.

Running a finance site and financial software platform, I interact with a lot of self-directed investors, many of whom are smart and talented, but often lack structure. Without a skeleton, or a foundation, the exterior is nothing but a facade.

Remember, your number 1, 2, 3, 4, 5 things to avoid is blowing up. Draw downs are the enemy. You should avoid them with all of your might, push back against the current of greed that ensnares you into honeycombs of death, and stop worrying about becoming a rich man/woman this year.

For the sake of brevity, I’m going to rattle of my top 10 rules for traders, more specifically geared towards people who are trying to create a net worth than preserve one.

1. Stop trading on margin.
2. Stop using aggressive option strategies. Matter of fact, stop using options altogether.
3. Stop trading futures.
4. Don’t allocate more than 15% on any single stock idea, and try to start as low as 5%.
5. Be sure to trim your big winner when it becomes more than 15% of your account.
6. Never trade on rumors or inside info.
7. Avoid averaging down.
8. Diversify your investments across the 8 principle sectors.
9. Stop being a contrarian.
10. Never let a loss exceed 10%. Sell it and move on. Sell losers fast, all the time. Zero mercy.

I could probably add another 20 to that list, but I’m fairly confident that I nailed the essence of danger for most investors, which ultimately, when reduced to a singular motive, is greed.

We’re in a very bull’d up market. I hate to hear your stories of mishap and ruin during such ebullient times. This might come across as corny, but I’m here to help. If you need some help, an objective point of view — you can email me at any time and I’ll offer you my two cents.

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12 comments

  1. frog2

    I stopped reading at #2

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    • Dr. Fly

      I guarantee more people reading this site have blown their accounts up using options than anything else.

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  2. zeena

    I believe Mrs. Fly has slipped you some love potion—watch out tonight you lucky man 🙂

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  3. fxtradepro

    Levered products aka options or futures are inherently important in getting ahead. I mean, you bought your home on leverage, right?. However, with that said, you must respect the waters you’re fishing in. Keep it to 1 option or futures contract per 30K in the account, and always have 50% margin excess. And oh yeah, Don’t be a moron, take a loss. Because let’s face it, Risk is the ONLY thing you can control in the market.

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  4. moosh

    8 is weak. 9, no chance. Otherwise, great list. Thanks fly!

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  5. acehood

    Quibble with 5; let your winners ride, if not add to them at opportune moments.

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  6. fryguy15

    I would change #2 and #3 to “learn how to correctly use options and futures contracts to gain an advantage”.

    I would also add “don’t chase moves, wait for better prices”

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    • Dr. Fly

      I would argue strongly against ‘not chasing moves.’ You can’t catch stocks hitting all time highs without chasing, pure nonsense.

      For 99% of people, options and futures are assclown investments. People should generally avoid them.

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    • joyous__ending

      You are likely an option pro. Problem is many folks get option/future access on their account and say I can do this right now. They may score a win and say this is easy, they go in deeper with options (spreads the week of expiration, butterfly, condor, iron black swan, selling put spreads) they get smoked on a VIX spike or selloff.

      The usually do not realize how nasty and quickly the wrong side of an option trade goes wrong and they can’t bring themselves to cut that loss in a matter of hours/days.

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  7. joyous__ending

    > I’m here to help. If you need some help, an objective point of view — you can email me at any time and I’ll offer you my two cents.

    Very generous offer. Says a lot.

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  8. soupbone

    #10 is encompassing so it is #1 perhaps.

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  9. francis

    You advice against options but sometime you’re using leverage ETF that are build with options. Is this because of the time value ?

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