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Top 10 Trading Rules

06/06/2018 14:29

Top 10 Trading & Investing Rules

1.  Trade the Trend

“The trend is your friend” may be the most widely used truism in investing…and it’s directly applicable to the study of Cycles. With Cycles, we attempt to identify significant Lows that mark the start of new trends. If you always trade with the trend and never trade against it, you’ll significantly increase your odds of trading success.     

Trading a trend with Cycles is fairly straightforward in concept - if a longer-term Cycle is moving up, buy the troughs of a shorter Cycle; if a longer-term Cycle is moving down; sell the tops of a shorter Cycle.

2.  Work for Optimal Trade Entries

Optimal trade entries are those that occur when the underlying asset is finding its Investor Cycle Low.  These lows occur 2-3 times per year, generally after frightening drops, and most often in concert with major, trend-changing events. Trade entries at these lows typically have strong risk/reward profiles.

3.  Stop Losses

Each position must have a stop loss. Know when to cut your losses and never be afraid of missing a rally. If the position is going against you, get out and regroup. Leaving a trade with a small loss is easy but allowing a small loss to balloon into a large one is inexcusable and sets the scene for a catastrophic loss in a portfolio. Too many investors stubbornly hold onto losing positions rather than admit that price did not move as they thought it would.   

4.  Protect Capital First…Then Worry about Winning Trades

A natural extension of #3, protecting capital is the single most important step in wealth management.  All the winning trades and associated gains are worthless if you give them all back through a few lousy portfolio-busting trades.   

Avoiding losses is about letting go of the idea that each trade must be a winner. Once you understand that you won’t, can’t and don’t need to win every trade - and that missing a rally is just fine – you’ll be able to exit trades without regret while losses are still small. And if you ensure that your losses are small, you can be successful with only modest winning trades. 

5.  Position Sizing

Keep your positions in check relative to your overall portfolio size.  Learn to fully understand each trade, especially its setup and probability of success. Since no two trades are alike, you should adjust your position size according to the risk/reward profile of each trade. Also, be sure to track your trading results - when you’re doing well you can be more aggressive and when results have been mixed, you should trade more modestly.

6.  Leverage and Options

Unless you’re a true expert, avoid significant leverage.  The only times you should consider leverage or options are at the beginning of new Secular or Investor Cycles. This is because the odds of success are the greatest at these key Cycle Lows. Plus, a nearby Cycle low offers a tight stop.

7.  Investing with a Plan

Trading without a plan is a proven losing strategy.  Whether you follow the Market Cycles via The Financial Tap or some other system, you must always have a plan in place which includes trade size, conditions for entering a trade, and reasons for exiting a trade.  Think through them all in advance so that, no matter the market conditions, you’ll know how to respond. Also make sure to ask yourself some key questions: “Why am I buying/selling here? Does this fit my plan/strategy? Am I likely to question the trade (for non-plan compliance) in the future?”

Trades go against investors all the time, even when the trades were entered via a well-defined strategy and according to a preset plan. Losing trades are normal – they are the price of trading. Losses provide you with the opportunity to tweak your strategy and improve your plan.

8.  Treat Investing Like a Business

In order to be successful, one must approach trading and investing as a business and not as a hobby. Investing should be one of the most important aspects of your life, right after spirituality, family, relationships, and personal healthcare.  You’ve likely spent years working to earn your wealth; you need to treat your wealth with the respect it deserves.

Understand what you’re investing in, why you’re investing, and what your expectations should be.  Never solely rely on an online service, advisor, index fund, or wealth manager.  Take control of your personal financial future, get educated, and understand where every dollar of your wealth is invested.

9.  Don’t Force a Trade – Wait For an Optimal Trade Setup

Even the most experienced investors have to fight the urge to trade unnecessarily.  For a variety of reasons, investors generally overtrade…and thereby greatly diminish their overall returns.  

It’s better to wait for an optimal trade setup – one that fits your trading plan; These trades have much greater probability of success than trades taken impulsively. Over time, taking higher probability trades will provide a much higher winning percentage and far greater portfolio returns.

10.  Trade within Your Means

Trading is as much about avoiding significant losses as it is making gains. Significant losses are difficult to overcome and can directly affect your quality of life.  There are NO shortcuts to financial success and the freedom it affords. Success in the markets must be earned.  Only trade with money that you can comfortably lose. Never trade with borrowed money (credit cards/line of equity/margin), have patience, and be realistic with your expectations.


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  • 1

    Great post Bob! I preach nearly the same points to our users at Exodus. Thanks for sharing!

    Submitted 1 year ago by Craig Weber

    Thanks Craig. 

    Some of it is simple stuff, but it's the Trading 101's that most people don't b

    other with or don't spend enough time on. 

    Submitted 1 year ago by Bob Loukas
  • 0

    Thanks for the write up Bob, much appreciated. Would love to read more on how you determine cycles. Seems to be your specialty. Any suggestions on what to read up on to learn this ? 

    Submitted 1 year ago by Steven Perchikov

    Absolutely will be getting deep into Cycles.   Just give it a little time until we all hit the ground running.


    Submitted 1 year ago by Bob Loukas
  • 0

    Great list! For me trading the technicals and figuring the right entry is tough enough but then the psychological game of taking a small loss as opposed to staying in and ruining your plan with "hope" can be a battle... even after all these years.


    Submitted 1 year ago by OneManTrading
  • 0

    Thanks for this. 

    Submitted 1 year ago by Todd
  • 1

    Thankyou for the great article and service, it is good to find a group that considers the basics.  I feel my membership is already creating value for me

    Submitted 1 year ago by Bradshaw
  • 0

    Terrific info and something to always think and go back to. 

    Submitted 1 year ago by Tim
  • 0

    We've been downtrending now in Crypto since mid-January.  Shorting was the way if you do that, and I didn't.  Is the new trend UP here yet, so many mixed signals, especially recently when Haejin says we're going up, yet the count changed and now there seems to be a visit in store for us to the 6,000 range.  What trend are you following?

    Submitted 1 year ago by Rich

    I can tell you by my book, the trend is down!  Yes I'm long right here, but only for a quick trade, on a tight stop, because I believe we have a new Cycle in play. 

    I like to trade price and not hope.  Price is in a downtrend with higher lows and lower lows for all the main Cycle pivot points.  I will cover more in my weekly report this Friday night.


    Submitted 1 year ago by Bob Loukas
  • 0

    Thanks a lot for this valuable post.

    Submitted 1 year ago by Segar
  • 0

    Good tips!

    Submitted 1 year ago by Francisco davila
  • 0

    Great post Bob. It would be good if these kind of posts can get a special tag. Like “FundamentalsForTrading” or similar (and shorter ;-)


    Submitted 1 year ago by Niclas

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