Trading Rules

 

Market Wizard Linda Raschke’s Technical Trading Rules  Rules   1.  Buy the first pullback after a new high. Sell the first rally after a new low. 2.  Afternoon strength or weakness should have follow through the next day. 3.  The best trading reversals occur in the morning, not the afternoon. 4.  The larger the market gaps, the greater the odds of continuation and a trend. 5.  The way the market trade around the previous day’s high or low is a good indicator of the market’s technical strength or weakness.  weakness.   6.  The previous day’s high and low are two very important “pivot” points, for this was the definitive point where buyers or sellers came in the day before. Look for the market to either test and reverse off these points, or push through and show signs of continuation. continuation. 7.  The last hour often ofte n tells the truth about how strong a trend truly is. “Smart” money shows their hand in the last hour, continuing to mark positions in their favor. As long as a market is having consecutive strong closes, look for up-trend to continue. The uptrend is most likely to end when there is a morning rally first, followed by a weak close.

  8. High on the close continuation the next morning in the direction of thevolume last half-hour. In a implies strongly trending market, look for resumption of the trend in the last hour. 9.  The first hour’s range establishes the framework for the rest of the trading day.  day.   10. A greater percentage of the day’s range occurs in the first hour then was the case in the past, and thus it has become increasingly important to trade aggressively if there are early signs of a strong trend for the day. 11. T There here are four basic principles of price behavior which have held up over time. Confidence that that a type of price action is a true principle is what allows a trader to develop a systematic approach. The following four principles pr inciples can be modeled and quantified and hold true for all time frames, all markets. The majority of patterns or systems that have a demonstrable edge are based on one of these four enduring principles of price behavior. Charles Dow was one of the first to touch on them in his writings. Principle One: A Trend Has a Higher Probability of Continuation than Reversal Principle Two: Momentum Precedes Price Principle Three: Trends End in a Climax Principle Four: The Market Alternates between Range Expansion and Range Contraction! 12. In In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word – Nobody! Thus the successful trader does not base moves on what supposedly will happen but reacts instead to what does happen.

The 10 Trading Rules of Jesse Livermore 

 

1.  Buy rising stocks and sell falling stocks. 2.  Do not trade every day of every year. Trade only when the market is clearly bullish or bearish. Trade in the direction of the general market. If it’s rising you should be long, if it’s falling you should be short.  short.  3.  Co-ordinate your trading activity with pivot points. 4.  Only enter a trade after the action of the market confirms your opinion and then enter promptly. 5.  Continue with trades that show you a profit, end trades that show a loss. 6.  End trades when it is clear that the trend you are profiting from is over. 7.  In any sector, trade the leading stock – the one showing the strongest trend. 8.  Never average losses by, for example, buying more of a stock that has fallen. 9.  Never meet a margin call – get out of the trade. 10. Go Go long when stocks reach a new high. Sell short when they reach a new low.

Ten Golden Trading Rules That Can Help New Traders 1.  Never add too a losing trade. In adding to a losing trade you are already wrong but now become more wrong with a bigger trading size. Adding to losers makes

 

you a counter trend trader that will eventually end badly when you find yourself on the wrong side of a strong trend.  trend.  2.  Never lose more than 1% to 2% of your trading capital on any one trade.  This means use position sizing aligned with stop loss placement so when you are wrong the loss is not big enough to damage you financially, mentally, or emotionally.   emotionally. 3.  Never trade anything you do not understand 100%. Do not trade futures, forex, or options until you understand understand the risk and how they work.  work.  4.  Trade in the direction of the trend in your trading time frame.  frame.  5.  Only look for low risk/high reward trades or high probability setups , when you don’t have any signals, don’t trade.  trade.  6.  Trade your plan, your system, your signals, the chart, and price action, not your own opinions, bias, or predictions.  predictions.  7.  You have to trade the right winning winni ng methodology methodolog y that you are ar e comfortable comfortab le with that fits your own personality.  personality.  8.  If you do not have a full trading plan with rules on entries, exits and risk management stop trading until you create one.  one.  

  9. The size ofof your wins and losses ultimately determine yourwith trading regardless your winning percentage. No system is profitable huge success losses.  losses.  10. Y Your our risk management rules will ultimately determine the success of your technical trading system.  system. 

10 Qualities That Successful Traders Have And You Need 1. Remove Emotion from the Equation As I mentioned above, successful traders are those who have removed emotion from the equation. A stock does not increase in value because people think it will go higher;

 

rather, it does so because traders and investors have made the conscious decision to allocate capital toward it. We all know this, but often forget it in the heat of the moment. Before you submit your order, reflect r eflect on why you’ve decided to enter the trade. Is it because you “just have a feeling that it will go higher” or that you conducted thorough technical or fundamental fundamental analysis? 2. Don’t Chase Anything, Ever  Ever  Seems simple, right? Buy low and sell high, they say. But this is much easier said than done due to the interference of emotions. Everyone wants to make money, but more experienced traders traders know that more often than not, chasing a stock will result in losses. In theory, this makes sense. Take the scenario of people sitting at their monitors, just like you, and watching the same stock spike right before their eyes. Before they can even enter the trade, thousands of share have traded hands and the stock spikes even more. By the time your trade goes through, it is likely that much of the air has deflated and the stock begins to rapidly descend from its high, as money managers are ripping the carpet out from under you before you can even realize it. Learning not to chase a stock higher (or lower, if you’re on the other side of the trade) comes with ex experience. perience. If you’ve fallen victim to the scenario I just played out, use it as a learning experience.  experience.  3. Be Patient, Young Grasshopper Grasshopper The previous two points go hand-in-hand with patience. It is advantageous advantageous to wait for a stock to show signs of a bottom before attempti attempting ng to catch a falling knife. Likewise, it is smart to deal with the short-lived pain of seeing a stock spike before your eyes for the rewarding feeling of purchasing shares after its descent. Moreover, make sure you wait until your prospective prospective trade has fully setup to your specifications, and don’t assume that any indicator will produce a buy/sell signal. Always confirm before you earn. 4. Bulls Make Money, Bears Make Money, And Pigs Get Slaughtered So don’t get greedy. If you’ve used technical technica l analysis to project a price target and the stock is currently trading at that level, place the sell order and do not change it. This applies to both long and short positions. He who believes that they can squeeze more return out of their trade — the inexperienced trader — is often compelled to sell at a smaller gain. Remember Remember that any profit is a good profit. 5. A Penny Saved Is A Penny Earned Losing money sucks. No trader is in the industry of losing money. If you’re looking at a lackluster trade setup f or or the hope of making up for yesterday’s yesterday’s bad day, you’re breaking rule number 3 and not realizing that money saved is money earned. It hurts more to lose money than it feels good to make money. Remember to be diligent and be content with earning and losing no money. 6. Know Your Risk Tolerance Every trader is different, and only you know your risk tolerance. Are you the type of trader who can risk 20% to make 20%, or do you feel the need to have a much higher risk/reward payout in order to enter a trade? Be sure to define your risk before placing any trade orders. Doing so helps ensure that you have an exit strategy, which is

 

arguably just as important as your entrance strategy. A little extra work in the beginning can make all the difference in the end. 7. You Won’t Be Right All The Time  Time   Even the best traders aren’t right 100% 100% of the time. But to be a good trader, you just have to be right more often than you’re wrong. Think of it like baseball: the Hall of Fame hitters are those who got out 7 out of 10 times. While this would correlate to a lot of red in a stock portfolio, the idea remains the same. You won’t, and don’t have to be perfect. If you follow in the footsteps of the successful Wall Street traders, then being right more than you’re wrong will come easily. 8. Learn From And Cut Your Losses Because you won’t always be right, you’ll undoubtedly experience some losses. The stock market is incredibly humbling, and a long stretch of winning trades can instantly be cut short by devastating devastating losses. But losing trades are healthy in the long run of your trading career, so long as you learn from them. Ask yourself why the trade went awry, and learn how to minimize similar mistakes in the future. Also, make sure that you exit a position as soon as your risk ri sk is fulfilled or a technical barrier — such as support, resistance, volume, etc — has been broken. 9. Don’t Turn A Trade Into An Investment Investment   If you’ve entered a trade, it’s i t’s most likely due to a technical or fundamental catalyst that caught your eye. For example, you may have boughten a stock because you thought its earnings would beat estimates. Even more, let’s say the technical setup is incredibly bullish and signals that the stock will exhibit upward moment. Unfortun Unfortunately ately for you, though, the company’s earnings earning s are lackluster and the stock falls sharply. What do you do now? Do you hope that the stock rebounds in the near future, giving you a better exit point? Hopefully not, because once a trade goes the opposite direction and you decide to hold onto it, you’ve turned you’ve  turned that position into an investment. If you created a position with one intention, make sure you exit it with the same and don’t change your thesis to justify the price movement. 10. Take Technical Analysis with A Grain Of Salt The thing about technical technical analysis is that it works until it doesn’t. As illustrated by the example above, a stock may have a bullish technical setup that isn’t supported by its fundamentals. Even though traders can cross out the name of a stock, conduct technical analysis, and make a decision regarding its future price movement, the best traders recognize that a fundamental hiccup can trump even the best technical story. Make sure you take the time to research the sector and industry of pr prospective ospective stock, and make note of any sector-, industry-, or stock-specific catalysts before outlaying any capital.