6. Trading is a business so treat it as one
Always take 50% of profits out of your account immediately that a decent gain is made, otherwise you will become complacent with only “paper profits”. A trader needs to feel cash in his hand when possible to crystalize the feeling of success.
7. Concentrate on a few stocks or markets
Choose only the leaders in a market segment and get to know their personality well over time before you trade. You can’t follow too many stocks or markets and be successful.
Market leaders change over time, so don’t fall in love with any one asset.
8. Don’t Overtrade and have patience
Trading is exciting so you need to control human emotions.
You won’t make money trading small movements in the markets, you will lose over time. Wait for the big moves (trends) to start for a chosen market or market leader. For a trader, realistically, there will be no more then four or five times a year where big market moves are initiated given market coverage ability.
9. Trend Change / Pivot Point: (Double Bottom/Top)
Catching a big move or trend change is important. To achieve this you need to not only recognise the pivot point, but act on it.
After a market puts a bottom in followed by a rise of at least 10%, if the price retraces to but does not break the previous low, wait for it to rise >5 % then buy (confirmation).
If the price falls below the previous low but by less than 5 %, and then rallies to at least 5 % above the previous low then buy (once again, this is confirmation).
Use same principle inversely for a double top.
10. Get out after the stock or market starts acting abnormally – this is a warning sign
After a trend is initiated (often with abnormal movements), stay with it so long as price action is normal. Normal would probably be a series of higher highs and higher lows (or lower lows/lower highs if shorting). Nothing dramatic: gradual movements upwards with normal pullbacks (certainly no more than 50% retracements indicate a strong trend).
As soon as the price action becomes abnormal (maybe a few days with abnormal rises [or falls]) be on guard and then exit the trade (if it turns out to be a false signal, you can always get back in).
Often the largest most profitable moves are at the end of a trend, so it is important to be in when the market does something abnormal (this is exhaustion at the end of a trend).