Always wait for the best setups. When you see them, take advantage of them. If you don’t see them, don’t force them.
Jimmy Rogers, a very wealthy, very successful trader and fund manager says “I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up.” Be patient. Wait for the best setups.
Don’t mix up your time frames. If your trade is based on a daily setup, don’t pay too much attention to intraday charts. Intraday swings are more frequent and they can cause you to exit too early. Likewise, if the trade is based on a weekly chart, don’t pay too much attention to the daily chart.
As a wise trader once said, “Too much attention to price fluctuation all but guarantees financial suicide.” We need to define our plan for the trade and have the discipline to stick with it.
Diversify. No matter how strong the trend is, it isn’t a good idea to put all your money in one market or one sector.
Manage your money. Many of the top pros limit their risk to one or two percent of the account balance per trade.
If you’re buying options, buy time. The biggest problem with options is time decay. The more time you buy, the less you pay per day and the more you minimize the effect of time decay.
Have reasonable expectations. I once talked to a novice trader who lost his job and hoped to replace his income by making $50,000 a year on a $10,000 account. That’s a lot to ask in any case, but if you add the pressure of trying to replace your regular income, the stress alone can beat you.
Warren Buffet is one of the richest men in the world. I’ve read that his compounded annual rate of return for over thirty years is just under 25%.
You can’t win if you’re afraid to lose. Being afraid to lose can cause us to sabotage our trading. As a rule, risk about half as much as you think you can handle. The less you risk, the less afraid you’re likely to be, and the more likely you are to follow your plan.
If you catch a good move, be patient with your profit exit. Let your profits run, or hedge them with options. Jesse Livermore said, “After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight.”
No matter how good they look, not all signals and setups work. If the market gives a good solid signal and it doesn’t work, it often results in a significant move in the opposite direction.
In my opinion:
The most important part of the trade is knowing where you’re wrong.
The most important action is cutting losses.
The easiest step in the trading process is getting in.
The hardest part is letting profits run.
The keys to success are consistency and money management.
A successful trading plan essentially boils down to this:
Know what will trigger your entry
Know what will cause you to close the position with a loss
Know what will prompt you to take profits
Last but not least, we must have rules regarding money management.