Chapter 12

Keeping Your Edge

The Rules of the Game

This chapter covers:     

Why you must commit to following the Rules of the Game

How to keep all the Rules of the Game in mind while you trade

 

The Rules of the Game (a.k.a. Essential Principles of Good Trading)

Here are the most important rules I follow to make me a successful trader. I don’t usually like to lay down hard-and-fast rules, both because it sounds too authoritarian and because I know that every rule has an exception and that different things work for different people. That’s why this list doesn’t contain rules about things that may be appropriate for traders with one style but not for traders with other styles—things like the trends I like to play, or the way I like to structure my trading day. Instead, these are the rules that have to do with the discipline a good trader must have to become and remain a winner. Think of them as essential principles of good trading.

Take this page of rules out of the book and tape it up right beside your computer screen. I’m completely serious about this. I want you to have these rules in your head at all times while you’re trading.

Once you become a confident trader, you may discover other rules or principles that work for you. When you do, follow them as consistently as you follow these. Some of them are pretty good rules for life, too—you may find them coming in handy when you least expect it. That’s how life is: If you’re open to the gifts it has to offer and allow yourself to receive them, there’s no telling how rich—in every sense—they can make you.

 

PICKING A STOCK	PLAYING A STOCK	PLAYING TO WIN
Always have a good reason. No reason, no play!	Plan the trade and trade the plan.	Play to win!
Don’t play maybes. When in doubt, stay out!	Don’t buy the gap up.	Be open.
Most tips don’t pan out.	Don’t chase a stock; wait for it to come to you. Last one in the pool swims with the turd!	You don’t need to win on every trade.
Trends are your friends.	Buy the rumor, sell the news.	No one makes money every day.
Go for the easy money. Think in terms of risk/reward!	Always use stops.	It’s a marathon, not a sprint.
Don’t catch falling knives.	Lock in profits religiously. No one ever went broke taking profits!	Be flexible. Don’t fight the market! Don’t fight the trend!
	Greed = Death. Pigs get slaughtered!	On a bad day, take a walk.
	Swing for singles, not the fences—and often you’ll hit home runs anyway.	Control your inner knucklehead.
	Take small losses.	Use sound money management.
	Don’t marry stocks.	You are responsible for everything you do, both in trading and in life. There are no victims, only volunteers!
	Don’t panic buy or panic sell.	You don’t have to trade panic every day.
		Make trading fun.
		Remember to give something back.
		Have a life outside trading.
Rule the freakin’ markets!	Rule the freakin’ markets!	Rule the freakin’ markets!