Memorize These 3 Unbreakable Trading Rules Immediately!

Summer’s over.

The kids are back in school. The major averages are a breath away from new highs. Wall Street’s elite are returning from the Hamptons to their trading turrets.

As some volume returns to the markets, it’s time for you to brush up on your trading techniques.

But there’s something important you need to understand before we dive in:

The stock market doesn’t care about you. It doesn’t care if you’ve had a bad day, if you weren’t paying attention, or if you punched in your trade incorrectly. The market also doesn’t care where (or if) you went to college. It doesn’t care how many years of experience you have — or how many complex techniques you use to pick your investments.

Got it? Ok, good. Because I also have some good news for you…

If you approach the market with a trader’s eye, you will instantly cut your losers in half and grow your account faster than you ever imagined.

All you need to do is learn three unbreakable trading rules. Abide by these rules and you’ll quickly set yourself up for trading success this fall. It doesn’t matter if you’re trading every week or just picking up a couple of plays a month to supplement your long-term portfolio. Stick to these rules and you’ll juice your returns.

When you understand these simple rules, you’ll have the opportunity to drastically improve your returns — and protect your portfolio from crippling losses. Don’t let the market fool you into making a bad trade!

Here’s how you can avoid getting burned:

1. Price is King

Price action will tell you everything you need to know about the markets. The financial news, rumors, gurus— all the rest of this crap is just noise.

The minute you allow your analysis to drift away from price, you are vulnerable to bad decisions that will cost you money. You have to toss your beliefs aside and obey the market’s signals—because they usually run contrary to common sense.

Let’s say you believe the markets will correct in September because valuations are just too high. It would be a mistake to take this analysis to heart if the market began to move against you. That’s where you’d run into trouble. Instead of obeying price action, you insist that your analysis is correct and the market will soon “wake up” and prove you right.

Nine times out of 10, the need to be “right” will end up costing you money. Price is your judge and jury. If you are wrong, sell your investment or trade and move on to your next opportunity.

The market doesn’t care what you think. All that matters is how much you pay for a stock—and how much you sell it for. After all, you’re here to make money. Period.

2. Don’t Chase Overheated Stocks

Sometimes, a stock on your watch list will gap higher due to a positive earnings announcement or other news event. In these cases, it’s critical you don’t “chase” the stock and buy shares when it’s run up too far, too fast.

Chasing stocks that have launched well above their breakout zones will lead to more stopped-out and unsuccessful trades. That will lower your winning percentage and sap away your hard-earned gains. Be selective and patient and you’ll dramatically improve your trading results.

If you do have a stock on your list that’s made a huge run higher, you have options. You can always put it on watch and buy it when it settles down. Or you can simply walk away. The market offers new trading opportunities every single day. Don’t get hung up on the one that got away…

3. Don’t Let a Trade Turn Into an Investment

You should never buy a stock without first defining your trading goals. I recommend placing your potential trades into two categories: quick trades and core holdings. These are your short-term and long-term trades, respectfully.

A quick trade is just that — a stock you plan to hold for a few days to a few weeks. On the other hand, a core holding can be a play on a much larger trend, such as the housing market recovery or resurging tech stocks (which are two big themes we’ve discussed recently). Trades in each of these categories should come with their own set of rules that work for you, along with the appropriate stop loss levels.

If you have set goals for all of your trades, you’re less likely to let a quick trade turn into a long-term hold — or take gains off the table too quickly in the case of a potential longer-term play. These are two mistakes that can ruin your returns.

What follows is your new trading mantra. Write it down and memorize it:

Don’t ever let a short-term trade turn into a long-term disaster. If it doesn’t work out, cut it loose.

If you look back on the last bad trade you executed, I can all but guarantee it went wrong because you bought out of excitement without considering all of the possible outcomes. Then, it started moving lower. And you decided to hang on. That turned a little, manageable loss into a huge disaster.

Now that you know these three unbreakable trading rules, you’re more than prepared to tackle whatever the market throws at you.

The market could give us a wild ride as September approaches.

Are you ready?


Greg Guenthner
for The Daily Reckoning

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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