Two Main Rules For Your Profitable Trading
Experts say good sex is 10% in your body and 90% in your head. Believe it or not, good trading evolves from the same ratios—10% methodology and 90% mental discipline. You can study charts and indicators until your eyes cross, but unless you develop a specific mindset that guides your trades, you’ll be walking a tightrope without a safety net.
To start with, let’s establish two, etched-in-stone rules to live by the rest of your trading life.
Rule One: Protect your principal.
Rule Two: Trade to trade well (not to make money).
Do they sound too simple to be true? They’re not. They’re much easier promised than accomplished, but they can be mastered. Virtually everything you learn in this book points back to these two rules, or imperatives, if you keep them uppermost in your mind, and implement them into every trade, you’ll all but guarantee a successful trading career.
RULE ONE: PROTECT YOUR PRINCIPAL
Successful professionals in occupations all over the world use tools to accomplish their goals.
As a successful trader, your tools consist of market knowledge, mental and emotional discipline, and your trading account. Protect the money in your trading account at all times. Don’t abuse it. treat it carelessly, or allow others to take it from you. This money is your most cherished tool, and you must guard it with passion and commitment.
“Yeah, sure, I already know all that stuff.” you reply. “You’re oversimplifying. You’re going overboard with your explanation.”
Am I really? I bet we’ve both heard the same statistics—between 80 and 90% of all traders crash and bum. As you read this, traders somewhere in [he world are chasing a stock, ignoring their stops, holding losers, overtrading, taking home dangerous or oversized positions, and buying against a downtrend. Translation? They are treating their precious tool—their trading capital—recklessly.
1 work with new traders every day who swear they protect their principal and in the next breath, abuse it by jumping into a careless trade. They get caught up in the thrill of the moment, the excitement of a running stock, the euphoria of buying when everyone else does. We’ve all done it. and I’ve beer there, too.
Even if you avoid all unnecessary risks, a percentage of your trades will lose money. Don’t add to these by careless trades, or you’ll wake up one morning with assets that total pocket change.
True trading professionals, who rake in profits of five, six, even seven figures a year, protect their accounts like a mother liger protecting her cub. They trade cautiously.
Jimmy Rogers, shrewd investor, frequent guest on CNBC, retiree, and teacher at Columbia University Graduate School of Business, says in Jack D. Schwager’s Market Wizards: Interviews with Top Traders, “One of the best rules anybody can learn … is to do nothing, absolutely nothing, unless there is something to do. 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.”
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