I used to have a mentor who would always kid around…
“Rule No. 1,” he’d say, “don’t lose money.
“Rule No. 2, don’t f’ing lose money!
“Rule No. 3… see rule No. 1.”
It’s not realistic, of course, because every trader loses money at some point.
But once you get it drilled into your head that you’re constantly playing defense and trying to protect your capital, you’ll be a lot better off.
The key is to avoid the deadly sin of taking huge risks and losing a lot of money.
Another deadly sin of sloppy trading is averaging down in a losing position. And what I mean by that is say you invested in stock XYZ, and it falls 10%, so you buy more, bringing the average price you paid down.
If you’re sitting in a crap position and constantly adding to it in hopes that it will come back, you’re probably taking capital away that would be better invested elsewhere than in a losing stock.
That guarantees you won’t make the money you should in the markets… And that leads me to the next deadly sin of falling in love with a particular stock.
You have to have room to change your opinion about stock in regard to its price movements. This stock doesn’t owe you anything, and you don’t owe it. You must remove emotion from your trading and think in terms of cold, hard math, precision and proper risk-reward.
This isn’t some BS fairytale or romance novel. You’re here to make money, and that’s it.
So dump that loser and don’t do what I call “revenge trading,” where you feel like you have to get your money back from that stock so you keep sticking with it.
That stock doesn’t know you, so cut it and run to the next opportunity. Because here’s the thing… there’s a near endless supply of trades you can make to make money.
The people who stay stuck in the past and can’t move on to the next trade, they miss out — and that’s another deadly sin of trading.
You also need to have a plan every time you enter a trade. Anytime you enter a trade without a plan, like a profit target or knowing how much you’re willing to lose before you exit, you’re just placing a bet in the wind.
Good, systematic trading is like running a business. Don’t just throw crap against the wall and hope it sticks, because that’s a good way to lose money.
It’s perfectly fine to trade a lot and be super active — just have a plan when you do. And speaking of being active, another deadly sin is getting too cute and trying to get the perfect price.
If you have a trade and a plan, put the trade on. Pay the bid price and go.
Another deadly sin is trading simply out of boredom, which is actually like two sins in one because you likely don’t have a plan if you’re just trading because you’re bored… because that’s just gambling.
That’s enough trading sins for today… Stay tuned and we’ll cover more sins
Jeff Zananiri
Jeff Zananiri Trading
*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
P.S. Time-Tested Metric Still Works Today on a Handful of Stocks
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