Probably the most important rule is that you must follow your rules! This may sound strange but is crucial. The majority of traders and investors fail and lose money simply because the fail to follow their own rules! Just make a search in any investing related book, blog, or website… You will find countless cases where a profitable trader experienced a significant loss simply because he made things in a different way just for one time because he thought that this deviation from the rules was the right thing to do.
A second general rule has to do with how to deal with losses. You should not risk more than a specific percentage of your total wealth, portfolio in a single trade. You may (think you) have the best entry and exit rules… But things change, people change, markets change! Stock prices and currencies may enter a new regime at any given time. Accept this fact and do not take extreme risks, do not risk a great portion of your capital in a single trade!
An old saying in financial markets that you have probably heard goes “Let your profits run and cut your losses quickly”. If a trade turns out to be wrong do not hesitate to exit. On the contrary, if a trade confirms the hypothesis behind it do not hurry to claim the profit. Prefer to exit a profitable trade based on a rational rule rather than a percentage profit rule. Do not set price targets as well.
aboutinvesting.org
