Having traded stocks and options professionally over the years, I’ve witnessed many market highs and lows. I’ve seen paupers become millionaires overnight, and I’ve also seen millionaires lose everything just as quickly. A memorable story told to me by my mentor still stands out:
“Once, there were two successful Wall Street stock market multi-millionaires. Both decided to share their market insights through newsletters, charging $10,000 each for their opinions. A trader, curious to know what they had to say, spent all his $20,000 savings to buy both. His friends, eager to know what he had learned, asked him. Furious, he said, ‘One said BULLISH, the other said BEARISH!'”
The moral of the story is that it was the trader who was at fault. In today’s market, different opinions can still yield profit depending on the strategy used and the discipline applied. Here, I share the key trading principles I follow to navigate the market successfully and consistently. These principles will guide you to profitability, help minimize your risk, and improve your trading strategy.
Principle 1: Simplicity is Mastery
When your stock and options trading method feels too complex to understand, it’s likely not the best. Successful trading often involves simplicity. A complex strategy can easily overwhelm you, especially during high-pressure situations. Simpler is better.
Principle 2: Nobody is Completely Objective
If you think you have complete emotional control during trading, you’re either a rare breed or inexperienced. No trader can remain entirely objective, particularly during erratic market conditions. Automate your key strategy components—like profit-taking and stop-loss points—to limit emotional influence.
Principle 3: Hold Your Gains, Cut Your Losses
Many traders do the opposite—holding losses too long while cutting gains too soon. This leads to losses outweighing gains over time. Mastering this principle is crucial for successful trading.
Principle 4: Fear Losing Money More Than Missing Out
Unprincipled traders often fear missing “the next big trade” more than losing money. The key is to stick to your strategy. Only take trades when your strategy signals it, and exit based on predefined conditions.
Principle 5: Your Next Trade Could Be a Losing Trade
No matter how confident you feel about a trade, the market often does the unexpected. Always follow your portfolio management system and avoid putting all your funds into one trade.
Principle 6: Know Your Emotional Capacity Before Increasing Capital
There’s a huge difference between paper trading and trading real money, and an even bigger one when significantly increasing your capital. Knowing your comfort level and emotional capacity for risk is crucial before committing more funds.
Principle 7: Treat Every Trade as a New Trade
Overconfidence after a few wins can lead to disaster. Always treat every trade with respect, following your strategy closely. Never deviate from your rules, no matter how confident you feel.
Principle 8: You Are Key to Success or Failure
It’s not the strategy that succeeds or fails—it’s you. Your personality and discipline are what make or break a trading strategy. Understanding yourself is key to becoming a successful trader.
Principle 9: Consistency is Key
Changing your approach frequently leads to inconsistency and missed opportunities. Stick to a proven strategy and evaluate your trades against that strategy before making changes.
Conclusion
I hope these principles, which have guided me through turbulent markets and into successful trading, will also help you on your trading journey. Good luck!
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