1. Trade like a guerilla warrior. You must learn to adapt quickly to changes. If the winning side is changing, don't hesitate to join the new party and to commit all your forces to this side (capital ,mental, emotional)... until the market conditions change. Don't get married to trades.
2. Be disciplined Create a game plan then stick to it. A trade does not simply consist of a position. It consists of a position plus reasons for having the position plus a stop loss level plus profit taking levels. In the long run your discipline will save you when markets get rough.
3. Buy high -> Sell higher - Sell Low -> Buy Lower. Do not try to bottom fish or pick tops. When you think you know the trend then follow it.
4. Think big picture but trade like a technical analyst. You must understand the fundamentals behind your investment ideas but you need to understand the Technical Analysis too. When your fundamental and technical signals point to the same direction... you have a good chance to have a winning trade.
5. Do not use excessively tight stop losses. Spend more time identifying a good entry point. Be patient. Give some freedom to the market. Place your stop losses carefully.
6. Hit your stops. The first stop is the cheapest stop on a losing position. Do not follow the temptation to "hang onto" a losing position that has gone through your stop loss level. It might work a few times but one day you will be hammered if you trade without discipline.
7. In a Bull market... Be Long or Neutral - in a Bear market... Be Short or Neutral. A lot of people forget this rule and trade against the trend by calling for short term changes in market conditions. This usually causes psychological imbalance and frequently leads to losses.
8. Go for the most powerful market trend. Do not focus too much on markets where the trend is not strong enough or the market is range bound or choppy. Commit your forces to the stronger trend.
9. Accept losses they are part of the game. Prepare yourself mentally and emotionally for this eventuality. Take some time off and come back fresh if you have been hit hard. Do not fight with the trade, curse the market or make some bargain with yourself (... if the market goes to my initial level I will get out... ! ).
10. Resist the urge to trade against the trend too early. The trend is usually right (fundamentally). Be patient. Wait for the trend to turn. When the fundamentals and technicals are turning to the other direction, wait a bit longer then enter.
11. Never add to a losing position. This is a recipe for disaster. Just add to winning positions especially when the market is retracing.
12. Do not make a winning position lose. Use trailing stop losses. You must learn to take profits.
13. Bear markets are more violent than bull markets. You can trade bear markets with smaller positions. Expect violent retracements so get in the habit of taking profits.
14. Keep all your technical analysis simple. Use simple support and resistance, Fibonnaci retracement and reversal days. A good tip: When yesterday's daily trading range is the smallest of the previous last 11 days trading range...be ready for a big move and some volatility.
15. Be aware of market liquidity at all times. Assets do not just have prices. They have liquidity levels too, and just as prices change so too does liquidity. Illiquid assets do not trade in the same way as highly liquid assets. Only trade lower-liquidity assets if there is sufficient compensation for the lack of liquidity and you are a true expert in the asset class.
16. Be intellectually honest. When you are wrong admit it , learn from it and go on to the next trade. The market rewards intellectual arrogance with losses and pain. If you want to stick to your point of view no matter what the evidence may be to the contrary… become a politician.
17. Wall Street climbs on a wall of worry. Be aware that the most likely time for a bull market to end is when everyone is bullish and the bottom of a bear market occurs when everybody is bearish. When everyone is on the same bandwagon… be careful and get ready to get out.
18. Be aware of psychological biases in the markets. Bond traders tend to make most money as economies slow and dip into recession. Stock traders tend to make most money when the economy booms. So many bond market participants are always pessimistic and many stock analysts are perpetual optimists. Try to remain objective and observe which market commentators appear objective too.
19. Be patient. The more profound your ideas the longer it will take for others to see them as well and thus the longer it will take for markets to move your way. Be patient and give yourself and your trades time.
20th Rule. If you have to... break the rules!