Buckle up, Evolvers…
Because I’m about to reveal the holy grail of investment wisdom…
Just as Moses received the Ten Commandments on Mount Sinai, I present to you: The Ten Commandments of Evolved Trading.
These tips and tricks can potentially transform your approach to trading, guiding you toward the promised land of consistent profitability.
So, get ready to part the ‘red sea’ of market uncertainty and embrace a newfound clarity…
Brace yourself, and keep reading to see the ten trading commandments that have helped me earn millions…
First Commandment: Cut Losses Quickly
In the stock market, one crucial rule stands out above the rest: cut losses immediately!
Trades will go against you. No trader is invincible. Even the most experienced market participants occasionally make errors in judgment…
However, what sets world-class traders apart is their ability to identify their mistakes and respond to their losses.
When a trade starts moving against you, you should simply cut the loss and move on.
While it may be tempting to hold onto losing positions in the hope that they will eventually turn around, this approach often leads to disaster.
CAUTION: Never ‘hold and hope!’
Remember, the goal is to protect your capital and preserve your ability to participate in future trading opportunities.
Second Commandment: Use Reasonable Position Sizes
Another vital aspect of successful trading is maintaining a reasonable position size.
This means that you should never risk a significant portion of your capital on a single trade.
Instead, aim for a position size that aligns with your overall investment strategy and risk tolerance.
Doing so accomplishes a few things:
- It keeps you psychologically comfortable in the trade…
- It protects your account from a blow-up…
- It guarantees you’ll be able to make another trade…
Maximum risk tolerance will vary from person to person, but I suggest never risking more than 10-20% of your small account on one trade.
And if you have a large account, that % figure should be much smaller. I almost never risk more than 1-2% of my large account.
Third Commandment: Minimize Your Risk
In addition to having a reasonable position size, it’s crucial to keep your risk exposure comfortable on any given trade.
This means assessing the potential downside of the position and evaluating whether it aligns with your risk tolerance.
Every trade carries a degree of uncertainty, but by conducting thorough research and analysis, you can make more informed decisions and minimize your risk.
Look at a trade and ask yourself … what’s the worst possible scenario that could happen?
Consider the factors that could impact the stock’s performance, such as market trends, company financials, and industry news. This information can help you gauge the potential risk and adjust your plan accordingly.
Fourth Commandment: Look at the Big Picture
As a trader, it’s crucial to look beyond the immediate and focus on the big picture. This is true in your charts and in your trading journey.
Market volatility and daily price movements can be distracting, but the world’s best traders are experts at evaluating the big picture of a stock’s charts.
Additionally, they understand that their trading journey will extend far beyond these temporary blips.
So, instead of being swayed by short-term noise, take a step back and evaluate the full trajectory of your trading journey.
Have a long-term vision. Understand what it’ll take to accomplish your goals. Don’t sleep on the big picture!
Fifth Commandment: Be Ready and Steady
I try to approach the stock market with a mindset of readiness and steadiness.
This means a) always being prepared for potential opportunities and b) staying disciplined in my trading strategy.
Opportunities in the stock market can arise unexpectedly, and it’s crucial to be ready to capitalize on them.
This readiness involves staying informed about market trends, monitoring relevant news, and building a watchlist of potentially tradeable names.
By being prepared, you can act swiftly when juicy setups present themselves.
Additionally, being steady in your investment approach means staying true to your strategy and not succumbing to impulsive decisions (more on that later)…
It’s easy to get caught up in market hype or act on emotions, but truly excellent traders maintain a disciplined approach.
They stick to their game plans and make decisions based on rational analysis rather than short-term market sentiment.
Sixth Commandment: Health is Wealth
While most traders are focused on the technical specifics of their strategies, it’s crucial to remember that health is wealth.
All of the money in the world won’t mean much if you’re not healthy enough to enjoy it.
And, believe it or not, your physical and mental well-being can play a significant role in your ability to make sound trading decisions.
Take care of yourself by maintaining a balanced lifestyle, getting regular exercise, and managing stress.
Avoid becoming overly consumed by the stock market or letting it negatively impact your overall mindset. Don’t stare at your screens all day. Go outside and get some fresh air!
Personally, I love playing basketball and tennis to get some exercise and relieve stress!
By prioritizing your physical and mental health, you’ll set yourself up for long-term success in all areas of life, including trading.
Seventh Commandment: Always Know Why You’re Entering a Trade
This may seem obvious to some, but I see many traders ignoring it anyway…
Before entering any trade, it’s essential to have a good reason behind your decision.
Trading solely based on rumors, tips, alerts, or gut feelings is a recipe for disaster. Yet so many traders still do this!
Instead, conduct thorough due diligence, analyze the company’s fundamentals, and evaluate the potential risk/reward.
Develop a clear trade thesis and ensure that it aligns with your long-term strategy. Personally, I use Tim Bohen’s 3-item Checklist before every trade…
By having a solid foundation for each trade, you can make more informed decisions and increase your chances of success.
Eighth Commandment: Don’t Force It
Next, it’s crucial to resist the urge to force trades.
However, not every opportunity will align with your particular strategy or present a favorable risk/reward profile.
This is why it’s critical to avoid chasing trends or feeling pressured to enter plays just because the market seems hot.
Patience is key in the stock market. It’s ALWAYS better to wait for the right opportunity than to rush into a trade that doesn’t meet your criteria.
Remember, your trading journey is a marathon, not a sprint. Trading opportunities are like trains, there’s always another one coming…
Ninth Commandment: Avoid Chasing Trades (and Alerts)
First of all, what is chasing?
To me, if a stock has three or four green days in a row without consolidation and you enter a long trade, that’s chasing.
When I send out my trade alerts, I often remind subscribers to not chase. I ALWAYS want to share my trades with students, but alerting plays can be a delicate balancing act…
As a trader, chasing a volatile stock is extremely risky, especially after it’s already moved significantly in a particular direction.
Getting a bad entry can ruin any chance of making a profit. Worse, it can lead to a loss.
Remember: Timing is everything! Being early (or late) on a trade is the same as being wrong.
Think about chasing from the perspective of an options trader. One example would be buying a call option into a big spike — or a put option into a big drop — that hasn’t shown any real consolidation.
If you aren’t careful, you could find yourself chasing the play because other traders are talking about the setup.
Now, this doesn’t mean you can’t pay attention to alerts — you just need to do it cautiously.
Send limit orders, patiently wait for consolidation, and do your own due diligence to help avoid chasing.
Tenth Commandment: Enjoy Your Trading Journey
If you’re not having fun and enjoying what you’re doing in life … what’s the point?!
I love trading, even when I’m losing…
I think trading the stock market is one of the most challenging and stimulating careers in the world and I’m so proud to be able to do it professionally.
But I’ve seen traders lose their spark before. The inspiration dwindles and they find themselves adrift in the markets, unsure as to why they’re doing it in the first place.
So, if you’re not having fun as a trader, this game probably isn’t for you.
I want you to enjoy every step of your trading journey, even the difficult ones.
By doing so, you’ll mentally condition yourself for the long journey ahead. And I bet you’ll trade better for doing so.
Navigating the stock market requires discipline, risk management, and a long-term perspective.
By cutting losses immediately, maintaining a reasonable position size, and staying focused on the big picture … you can potentially increase your chances of success as a trader.
Be ready and steady, prioritize your health, and always have a good reason for each trade.
By keeping these principles in mind, you can potentially rise above the 90% of traders who fail and flourish in the stock market.