28 Rules To Be A Successful Trader
Here is a comprehensive list of 101 rules that one needs to follow, understand, and integrate into their trading strategies to become a successful trader and make money when investing in penny stocks. These rules come from researching successful traders and my own set of experiments and experience with the stock market. I hope you all will be able to incorporate these rules into your daily day trading strategies.
1. Before you try to trade with real money, research and learn as much as you can and PAPER TRADE! Paper trading or virtual trading are these websites/software that allow you to trade like you would in real stock market
2. Make sure you know the ins and outs of the broker you’re using and exactly how to buy/sell stocks and how the platform works. You don’t want to see a perfect/ideal trade setup and then freeze up or be slow into get in or out of the action because you don’t know how to navigate the software and input your trades!
3. Cut your losses short – disregard commission costs and if a stock doesn’t go your way or exactly how you think/plan it will go when you enter the position, then just exit out. You can always re enter the position later on at a more ideal time. Remember, in order to win and win big like you can see many traders do, you need to stay in the game and here’s nothing that can take you out faster then losing your account in a bad trade because you kept holding.
4. Learn about stop losses. Whether you set actual stop losses or set mental ones, make sure that you stick with the plan that you set for yourself when you went in.
5. DON’T GET GREEDY! If you wouldn’t want to lose $50 with a trade going against you, why wouldn’t you take a $50 gain when you get the opportunity? Of course, that doesn’t mean you shouldn’t ride the potential massive gains! Essentially, you must learn how to read Level 2
6. LEARN LEVEL 2 and only trade with Level 2. Trading without level 2 is like driving a car in the rain without your wipers working. Can you do it? Of course. Should you? NO! Not if you value your money.
7. Don’t hold into earnings. These are penny stocks and the market movements do not always make sense. You should be ready to react to earnings and contracts and news, but never get ahead of yourself. I’ve seen amazingly positive earnings reports lead to a stock crash and I’ve seen court orders and lawsuits filed against a company leading to a major spike in price upwards. You can not predict the future so NEVER HOLD STOCKS INTO NEWS.
8. Spend time researching stocks. Don’t simply rely on other people’s watchlists and alerts and stock picks. Instead, I use these people’s alerts just to draw my attention to the ticker symbol and then I do my own due diligence on the stock to see if it correlates with their advice and my own trading strategy and risk ratio.
9. Do not overtrade! There are times and days when there are no good trades at all and the trades that were good, you missed. To be honest, this is usually why even the master stock traders like Tim Sykes and Superman etc. lose money; they get bored and overtrade and enter trades they are not 100% confident with.
10. Know the different types of restrictions and rules that day traders face. For example, the PDT rule, which applies to you if your account is less then $25,000, limits you to 3 “day trades” every 5 days. By definition, you use up a day trade every time you buy and sell a stock in the same day. The PDT rule is pretty much the main limitation for people with accounts less then $25,000.
11. In order to get past the PDT rule, you are better off opening up and using multiple brokerage accounts. This allows you to have these 3 day trades across several accounts which is a great alternative to increase the amount of trades you can do until you break the $25,000 milestone!
12. Know the difference between a cash account and margin account. When you have your brokerage account set up as a cash account, if you sell a stock/close a position, it takes 3 days for the proceeds (meaning the cash you receive from selling the stocks) to “settle”. Only after those 3 days are you allowed to trade with that money again. If you enter another position aka buy stocks with that money before it is “settled”, then you are not allowed to exit that position and are STUCK in that trade so be warned! Upgrade to a margin account as soon as possible; different brokerage accounts have different processes for one to upgrade.
Example: You have $2500 in your account. You buy 1000 shares of AAAA at $2 (total $2000). Then, you sell the 1000 shares of AAAA for $2.10 (total $2100). Now, in your account, you have $500 of cash available for trading, and $2100 of unsettled cash. If you try and buy 1000 shares of BBBB at $1.00 (total $1,000), you are now STUCK and cannot sell any shares of BBBB until 3 days, after your “cash settles” so be warned.
13. In the beginning, pick one trading strategy and stick to it until you are confident with it. For example, beginners should probably start with buying earnings/contract winners when technical breakouts occur. In this case, you should stick with this strategy until you are comfortable with it and have found success with it, and then slowly practice a new strategy on a virtual trading account!
14. Going off of the previous rule, although it is good to stick with what works (obviously), work on expanding your skills so that you can go both long and short, giving you 2 methods of potential profits and not limiting you.
15. Don’t just trade out of boredom! Wait for the perfect chart patterns. As I’ve stated before, many successful traders only really lose money because they get bored and enter positions in stocks that have bad charts or at a non-ideal time. Tim Sykes has a great motto: “Pretend you are a retired day trader that only comes out of retirement for the best and most ideal setups”.
16. Go into each day with a plan so that you can capitalize and take advantage of the best trades. This requires some time and research but let me know if you know any other way of being able to make 20%/30%/50%+ of your money as a return on investment in the time it takes to do a trade.
17. Keep your stop losses based off of two main concepts: 1) How much you are willing to lose 2) Where does the chart/stock show support? That way, you can calculate whether or not a stock is worth getting into. For example, if you see a stock has support at $.30 and it is currently trading at $.35, then you know you have about a $.05/$.06 risk and you should set your stop loss for about $.29 so you can get out in time. Again, you can see where the chart/stock shows support not only through technical analysis but also by taking a look at the level 2.
18. Make sure you only trade penny stocks with high volume so that you can quickly enter and exit positions. You need high volume to get quick fills and be able to liquidate.
19. Don’t try to short morning panics, if you trade for even a little bit, you’ll learn how random and crazy the first 30 minutes of trading are and personally I have found no success in this strategy because sometimes that stock spikes up way too high, squeezing you and several other shorts out of their positions.
20. Try to discover successful patterns and trends. Even though penny stock trading is controlled with manipulation and hype, try and take a scientific approach to stock trading and test your hypothesis by tracking stocks like I do with my daily stock watch list. I use this as a way to try and see whether or not my hypotheses are correct and whether or not I should trade into these profitable trades.
21. Learn all the rules and particularities involved in shorts before you start doing it. Again, practice it on a virtual account first before doing it for real. There are many things you have to pay attention to such as the uptick rule, the $2.50 margin rule, and the “cover” rather then “buy” rule. If you don’t know exactly what I mean by my terms in the previous sentence, you are not ready to short and must do more research!
22. Don’t chase gains. This means that if you see that a stock has already shot up 50%, don’t just try and buy in, you may be too late. If you miss your entry, don’t worry, the stock market isn’t going anywhere, there will always be another major play. Just make sure you do your research so that you are prepared next time!
23. You need a good stock scanner. Personally, I recommend Equity Feed. Here is my affiliate link. Once you scan stocks with this, you will never go back. This tool is truly a game changer and you will stupid knowing that you used to trade without it.
24. Persistence is key. Try to gain as much as you can but don’t be afraid to take your gains even at 5%/10% etc. There are people like Tim Grittani, one of Tim Sykes best students, who started with $1,500 and are up to $1,600,000 only about 2-3 years later.
25. Know the stock promoters and which stocks are being hyped. I recommend using pennystockrumble.com, it is a penny stock newsletter aggregate website which claims to show which stocks are being hyped up and promoted out of 600 newsletters. Knowing this information can help you understand which stock promoters are successful and their patterns which can give you an edge in your trading.
26. You will never be right 100% of the time. Even the best traders such as Timothy Sykes, Superman, lx21, etc. win only about 70%-80% of the time. However , as long as you make sure to exit the trade and cut your losses short when your wrong, you will be able to be profitable.
27. NEVER EVER trade off of a hunch or your gut. 90% of traders lose money, even professionals, so make sure that every trade you go into is based off of a set plan, like I write out for each stock on my daily watch list.
28. Wait until you have about $1,000+ before you start trading or else your gains might be minimized too often with the commission costs. Save up money while you research and paper trade so that by the time you have enough money to trade, you will have some decent insight into the markets and will be in a better position to profit.
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