Bonddad's Rules for Trading

I've seen a few of these around the web lately, so I thought I would add my own. These are in no particular order of importance.


• The market will make an ass of you whenever possible. Or – the best laid plans of mice and men….. Seriously, everybody who trades has done the “perfect” analysis, only to have the market go against them. It has happened to me, it has happened to you, and it will happen again. Welcome to trading.

• Limit your losses. Place your stop losses at levels you can live with.

• Manage your money, or don’t put all of your eggs in one basket. I learned this from W.D. Gann’s books and it’s an important lesson. Don’t over commit on any trade.

• Don’t make emotional trades. I’ve done it and you’ve done it. You’ve had a rotten day, but something you are watching starts to move so you take a position to make yourself feel better, not because it’s a good trade. This is a bad idea. In addition, sometimes we’re prone to combining this bad idea by ignoring rule number 3 and going for the “big score”. This is also a really stupid idea and a deadly combination.

• Know where you are in the cycle. There are many trading time frames. Know what the 10 year, 5 year,, 1 year, 6 month, 1 month and two week charts look like. Tear them apart and make sure you know them backwards and forwards.

• Know the economy. Technical analysis tells you when to buy; fundamental analysis tells you what to buy. By knowing the economy, you know what to buy and what not to buy.

• No one ever went broke taking a profit. I know – the chart is sure to keep going up. But it might not. We’ve all sold a position only to see it continue to make money. So what – we’re still up.

• There is always another trade around the corner. I’ve missed trades and you’ve missed trades. Guess what? There is another opportunity tomorrow – or later today. Always keep your eyes open.

• Learn to play both sides of the street. Remember – you can go long or short in the market. There is nothing inherently evil about going short. In fact, sometimes it’s the smartest thing you can do.