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1. Adopt a definite trading plan.
Because of the emotional stress that is inherent in any speculative situation, you must have a predetermined method of operation, which includes a set of rules by which you operate and adhere to, thus protecting you from yourself. In trading, you are your worst enemy.
2. If you're not sure, don't trade.
If you're in a trade and feel unsure of yourself, take your loss or protect your profit with a stop. Re- entering on confirmation is usually far cheaper (and less painful) than making a mistake.
3. You should be able to be right 40% of the time and still show handsome profits.
In speculating, it would be folly to expect to be right every time. One good trade should pay for a few losses.
4. Cut your losses and let your profits ride.
The basic failing of most speculators is that they put a limit on their profits and no limit on their losses. Keep it simple, trends happen - curb the loss and let the winner ride,
5. If you cannot afford to lose, you cannot afford to win.
If you are not in a position to accept losses, either psychologically or financially, you have no business trading. No exceptions!
6. Don't trade too many markets.
It is difficult to successfully trade and understand a specific market. It is next to impossible for an individual, especially a beginner, to be successful in several markets at the same time. Genius is rare - believe it! This is work, hard work that requires much personal devotion.
7. Don't trade in a market that is too thin.
A lack of public participation in a market will make it difficult to liquidate a position at anywhere near the price you want. Expect big slippage.
8. The Trend. ("The Trend is your friend")
Identify it. Don’t trade against it. Give it some room - this is your initial risk. Get out when your business plan dictates. Most people do not own a business plan - ridiculous!
9. Don't attempt to buy the bottom or sell the top.
It simply can't be done unless you have the aid of a crystal ball. Wait for any indication that you have a strong argument to take the trade within an acceptable level of risk (within your overall trading plan).
10. Never straddle a loss.
A loss by itself is difficult enough to accept. However, to lock in this loss, thus making it necessary for you to be right twice rather than the once (which you previously found impossible) is sheer absurdity if not outright stupidity.
One final note - If you have any difficulty understanding what you have read, you should work with a suitable broker until you are ready to trade on your own. Avoid unnecessary pitfalls. It is likely cheaper in the long term. Discuss your trading style, your aversion to and acceptable levels of risk, your expectations and most importantly, your business plan.
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