10 Rules for Successful Trading

2022年8月4日

1. Study.

• Learn how financial markets work. Years ago I took Khan Academy's free courses on the financial markets. It really helped reinforce what I already knew, taught me new stuff and solidified my confidence in understanding how the financial markets work. Here's the link: khanacademy.org/economics-finance-domain/core-finance
• Learn the basics of Technical Analysis. For this part I read "Technical Analysis of the Financial Markets" by John Murphy. I read the whole book not once, but twice, and I constantly refer to it to refresh my memory. You can also get the supplemental workbook to do exercises and test your proficiency. Link: amazon.com/Technical-Analysis-Financial-Markets-Comprehensive/dp/0735200661
• Learn the basics of Macroeconomics and Microeconomics. Khan Academy also provides excellent free courses in this subject area with quizzes and tests to confirm your proficiency. This part is important for understanding the big picture. Link: khanacademy.org/economics-finance-domain

2. Develop a trading plan.

• Write out your trading plan step-by-step and follow it every time. If you don't do this, you won't be consistently profitable in the long term. Never trade on a whim, even if you fear missing out on a big move. I would rather miss out on a big move up because I took the time to develop a plan than jump in without a plan and experience a big move down. Here's a good resource for how to develop a trading plan: ig.com/en/trading-strategies/how-to-create-a-successful-trading-plan-181210

3. Find a trading mentor.

• Find someone who is more experienced than you and learn from them. I was able to connect with a very experienced trader here on Trading View with whom I share watchlists and get trade ideas from. We chat regularly and confirm or critique each other's ideas. Having a trading mentor has been invaluable to my trading. It's important to find someone who is trustworthy and competent, and willing to critique your trading ideas. Often we as traders only see what we want to see in the chart and miss or ignore obvious clues that go against our theory. For example, what one person sees as a triple bottom (bullish) another person may see as a bear flag (bearish).
  
• Another way to learn from other traders is to subscribe to traders who post high-quality content on Youtube. I subscribe to a few great trading Youtubers who give me all kinds of insights. My trading has definitely improved because of learning from other traders. With this said, don't go overboard. Find just a couple of good people to follow. You don't want to follow dozens and dozens of traders as you will suffer from information overload.
  

4. Manage risk.

• Preserving your capital is necessary to stay in the game, so you need to manage risk. No matter how good your charting may be, some of your trades will go against you and will need to get out. That's why I always use stop losses and get out of a trade at a certain predetermined level. Stop losses always limit loss, but do not necessary limit profit. This in turn allows you to only be right half of the time (or in some cases even less) and still be profitable. The topic of stop losses actually warrants it own discussion. In the future, I will be writing a post on how to place your stop losses.
  
• Other risk management strategies include: limiting the amount of margin you use, only risking a certain percentage of your portfolio on any given trade, and diversifying your portfolio. A key difference between trading and investing is that investing does not (typically) employ stop losses. Long-term investors typically manage risk by using diversification.
  

5. Be humble.

• Check your ego at the door. It does not matter if you're right. The only thing that matters is your money. Never stay in a trade because you don't want to admit that you were wrong. I've seen plenty of charts that looked amazing and then a black swan event happens. Perhaps one of the best ways to think about it is to consider this paraphrased statement from the legendary trader Larry Williams: "Regardless of past performance, never forget that every new trade you make only has a 50% chance of success." I have seen some Trading View users who are completely consumed by pride and post their win rates and super high-profit percentages. I steer clear of these traders because they fail one major rule of good trading: staying humble. Past performance is not a guarantee of future performance.
  

6. Keep a journal.

• This one is very important. Whenever I learn something new about trading, I write it down in a trading notebook. Whenever I make a mistake, I write down what went wrong and what I learned from the mistake. My trading notebook contains my strategies both for bear markets and bull markets, contains the steps for my daily routine, contains my screener criteria, and contains a listing of all the important things I've picked up over the years of trading.
  

7. Track your assets.

• Employ some kind of a method for tracking your performance. Even though it's time-consuming, I use a spreadsheet.
  

8. Avoid speculation.

• Never trade based on speculation or emotion. Never buy or sell an asset because of fear (whether fear of a market crash or fear of missing out on a huge rally). Never enter into a position simply because you like the company, and similarly do not avoid selling your position because you love the company too much. The most successful traders are rigorously unemotional and unattached. In my opinion, I define anything that does not involve an analysis of data as speculation.
  
• I have also come to learn that by the time everyone is talking about something, it is usually at peak mania and will not go up further. For example, when your co-worker or close friend is talking about how much they made from Bitcoin, it's probably time to sell. Similarly, if you see everyone on social media posting photos of how much it costs to fill up their car with gas, it probably means we're at the peak of gas prices.
  

9. Learn how to use your charting platform.

• One of the best things I ever did to master my charting was to spend a few weeks doing nothing but just learning all the features on Trading View. When I first signed up for Trading View I was overwhelmed by all the tools, indicators, strategies, and ideas on here. So I knew I had to take a timeout from trading and just learn the tools first. For several weeks rather than focus on trading, I focused on learning Trading View. I favorited indicators that work best for my strategy, I created layouts and explored every nook and cranny on the platform. Trading View is incredibly powerful because it provides access to so much data. Having access to data is power. By taking the time to learn how to use all of its tools, I was able master the financial markets to a degree that I can now make predictions just good as those high-paid Wall Street analysts. Your subscription will pay for itself through the profits you make.
  

10. "Look first. Then leap."

• Always chart out your entry point, stop loss, and profit target before entering a trade. Ask yourself: How much risk am I willing to take for how much profit?
  

Here's a great resource from Investopedia that inspired this post: investopedia.com/articles/trading/10/top-ten-rules-for-trading.asp

This list of good trading rules is nowhere near comprehensive, so please leave a comment below to share your rules and tips for successful trading!

2022年9月7日

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Tip #1

Trading, unlike investing long term, always requires that you use a stop loss.

This is absolutely mandatory if you want to be profitable over the long term. Failure to use stop losses or manage risks appropriately is why over 90% of traders fail to become profitable in the long run.

Your stop loss should take into account the asset's Average True Range on whatever timeframe you are trading on. To find this value, search for "Average True Range" in the indicator section. Using a stop loss that is smaller than the Average True Range, can result in you getting whipsawed. Whipsaw refers to when your stop loss triggers but then the price ends up going back in the direction of your trade.

Using the Average True Range can therefore decrease the chances that you get whipsawed and improve the odds that you are profitable.

2022年9月14日

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Tip #2

Learn how to use the MA Exp Ribbon template.



The MA Exp Ribbon is simply a collection of commonly used exponential moving averages. It can be used in many ways here are some of the ways that I use it.

1. Identifying Trend - The MA Exp Ribbon (which I call EMA ribbon for short), can be used to determine trend. In an uptrend, the MA Exp Ribbon acts as support when price falls to it from above. In a downtrend, the EMA ribbon acts as resistance when price hits it from below.



Therefore one trading strategy is to buy dips when the price reaches the EMA ribbon from above and the price has been in a strong uptrend. On the flipside, you may short the market when prices hits the EMA ribbon from below and has been in a strong downtrend. As always, be sure to check what's happening on other timeframes and to always use stop losses.


2. Detecting Trend Reversals - The EMA ribbon can help detect trend reversals. When price pierces through the ribbon on high volume and with strong momentum a trend reversal has likely occurred.





Be sure to exit your position if price breaks the EMA ribbon on the timeframe you trade on, and you're on the wrong side of the trade. Otherwise, you could end up with significant losses. As shown below, once Meta's price broke below the EMA ribbon, it fell like a rock.



3. Bull Flags and Bear Flags -

Most valid bull flags (or pennants) actually occur when price retreats to or consolidates within the EMA ribbon. The bull flag or pennant occurs because the price is oscillating down while the ribbon is supporting it and consolidating.



The EMA ribbon is also the culprit for the breakdown of bear flags and pennants. So if you see price consolidating after a large decline, and don't know if it's a bear flag, check to see how price is responding to the EMA ribbon.



4. Comparative Charting

The EMA ribbon can also tell us which of two assets is a better one to invest in! Suppose for example you wanted to know whether you should invest in T-Mobile (TMUS) or Verizon (VZ). You can use the EMA ribbon on a ratio chart TMUS/VZ



As you can see, although its outperformance waxes and wanes there is a clear uptrend that shows that TMUS has historically been a better investment.

2022年9月17日

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Tip #3 - Understanding Why The Stock Market Always Moves Up Over Time

As a trader, it's important to understand why the stock market always tends to move up over time. Why do stocks, which represent equity in a company, always tend to move up?

The answer is actually quite simple: The stock market, in large part, moves up because the money supply moves up.

During economic downturns, stocks tend to move up less than the money supply, during periods of high growth, stocks tend to move up more than the money supply. Therefore, the stock market, believe it or not, is merely an oscillator of the money supply.

2022年9月17日

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Below is a chart that shows that the stock market is merely an oscillator of the money supply. Notice how the S&P 500 basically oscillates above or below the center line when plotted as a ratio of the money supply.





This is why the stock market generally declines during monetary tightening. Monetary tightening is simply a period when the Federal Reserve reduces the money supply, usually for the purpose of fighting inflation. If the Federal Reserve reduces the money supply, then the stock market, which is an oscillator of the money supply, virtually always falls, too.

Here are some nuanced points for those who want a deeper understanding: One exception to the above is that sometimes the stock market can continue going up even while the Fed is tightening the money supply. This occurs is if the economic growth rate is higher than the rate at which the money supply is being reduced. This happened during the 1990s. On the flip side, major stock market declines can occur when the money supply is being reduced at the same time that economic growth is also slowing. This is what occurred during the 1970s and in 2022. This period is called: Stagflation (or a period characterized by both high inflation and slowing economic growth).

2022年9月18日

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Tip #4 - Develop Good Personal Finances Habits Before Trading

Before you begin trading in a brokerage account, you should first ensure that you are investing money into your retirement account. You should invest at least 10% to 15% of your income in a well-diversified, low-fee, reputable retirement mutual fund. Trading should be done with money that is left over after you've contributed at least 10% to 15% of your income to your retirement account, and after you've saved 6 months of your income in an interest-bearing bank account for an emergency fund. If you cannot afford to achieve these two personal finance hurdles, then it's likely that you cannot afford to trade. Never trade using your retirement funds and never trade using your emergency fund.

2023年4月10日

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Tip #5 - Avoid swing trading or investing in derivatives (such as options or leveraged ETFs) unless you fully understand the effects of time decay and/or volatility drag, and take these attributes of the asset into account as part of your risk management strategy. These forms of decay tend to perpetually erode the value of the asset over time. If you'd like to learn more about some of the risks associated with swing trading leverage ETFs, you can check out my video below.

2023年4月12日

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Important Disclaimer
Nothing in this post should be considered financial advice. Trading and investing always involve risks and one should carefully review all such risks before making a trade or investment decision. Do not buy or sell any security based on anything in this post. Please consult with a financial advisor before making any financial decisions. This post is for educational purposes only.

2023年4月25日

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Tip #6

Another important tip is to never risk more than 1% of your total portfolio on a single trade. This requires using a position-sizing tool for each trade. By minimizing risk in this way, when you are wrong on a trade, the consequences are capped at only 1% of your total capital. This not only eliminates the risk of catastrophic loss on a single trade but also decreases your stress level so you can better trade without emotionality.

2023年6月19日

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Tip #7

One of the most important concepts for managing risks is diversification. To be a successful investor over the long term, an investor must diversify their portfolio holdings. To learn more about diversification, you can check out this article on Investopedia: investopedia.com/investing/importance-diversification

2023年7月25日

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Tip #8 Use TradingView's paper trading feature before trading with real cash.

TradingView's paper trading feature is a great way to learn the basics of trading and practice your trading strategies, without risking any money.

To learn how to Paper Trade on TradingView, you can watch this video: tradingview.com/support/solutions/43000516466-paper-trading-main-functionality/

Use paper trading to develop a strategy that is consistently profitable (after simulating fees, commissions, and taxes). Once you've developed a strategy and you're ready to implement it with real money, it's important to start with a small amount of money. This will help you avoid making emotional decisions and allow you to practice your trading strategies without risking too much.

Ultimately, trading should be completely emotionless and purely algorithmic.

2023年9月7日

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Tip #9

Don't force trades. If you're not seeing a good setup, don't force a trade just because you want to be active. The market will always be there, and there will always be other opportunities. Being patient and waiting for the right trade will help you to make better decisions and avoid losses.

Here are some other tips for being patient in trading:

Have a trading plan. A trading plan will help you to stay disciplined and avoid making emotional decisions. Your trading plan should include your trading style, risk tolerance, and entry and exit criteria.

Set realistic expectations. Don't expect to make a lot of money quickly. Trading is a long-term game, and it takes time to develop the skills and experience you need to be successful.

Take breaks. If you're feeling frustrated or stressed, take a break from trading. Go for a walk or spend time with your loved ones. Coming back to trading refreshed and relaxed will help you to make better decisions.

Patience is an essential skill for any trader. By being patient, you can avoid making emotional decisions and increase your chances of success.

2023年9月9日

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Tip #10.

Understand that the market is always right.

This means that if you make a losing trade, it is not because the market is wrong. It is because you were wrong about the market. This is a hard pill to swallow for many traders, but it is essential to understand if you want to be successful in the long run.

The market is constantly changing, and it is impossible to predict with certainty what it will do next. This is why it is important to have a trading plan and to stick to it. Your trading plan should include your trading style, risk tolerance, and entry and exit criteria. By having a plan, you will be less likely to make emotional decisions that can lead to losses.

Another important thing to remember is that you cannot win every trade. Even the best traders lose money sometimes. This is why it is important to manage your risk and to only risk a small amount of money on each trade.

If you can learn to accept that the market is always right and that you will not win every trade, you will be well on your way to becoming a successful trader.

2023年10月26日

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Tip #11

Use TradingView's All Chart Patterns tool before making a trade. This premium tool is particularly helpful in that it automatically applies chart patterns algorithmically. As emotional beings, we sometimes only see what we want to see in a chart. So having this objective tool can help eliminate personal biases when trading.

2023年11月1日

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Tip #12

Search for bullish and bearish divergences.

As an example, on September 14, 2023, I noticed the below chart, which showed strong bullish divergence on the weekly chart of the VIX.



Here's what happened after that point in time. Strong bullish and bearish divergences can provide reliable trade signals.

2023年11月5日

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Tip #13

Consider seasonal trends when trading.

Seasonality charts can be helpful especially if you're swing trading on an index ETF like SPY. My go-to seasonality source is the Seasonality [TFO] Indicator on TradingView, shown in the chart below.

2023年12月4日

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Tip #14

Don't trade against the trend.

This tip is similar to the one above about identifying the trend by using the EMA ribbon, but it's worth reiterating. The market is always moving in one direction or another, and it's important to identify the trend before you make a trade. If you're trading against the trend, you're more likely to lose money. Don't try going long on a short derivative that decays in value over time, and don't try shorting an asset that moves up exponentially over time. Always trade and invest on the side of a trend. See the section above about the EMA ribbon to learn how to identify trends.