While digging into the archives earlier searching for information on something else, I ran across an old blog post from Trader Scott. The message is so incredibly simple, that just adhering to the rules below, without emotion will yield profits. So if anything gets branded into your brain about trading, let these 3 simple rules be it as it comprises about 90% of the method we use in our own trading. And first recognize, and then learn how to deal with, the extremely tricky time-frame issues involved when trading or investing in markets:
#1 – Determine and Respect the trend of the market. This is by far the most important thing you could ever learn about markets. You will NEVER make money in markets if you don’t understand this concept. Just always being in total sync/harmony with the stock or the market (in the right time-frame), in and of itself, will virtually guarantee success in this business. Keep repeating that to yourself.
And there are 3 types of trends – up, down, or sideways. Sideways trends are either forming a top, forming a bottom, or are just pausing in the current trend. ALWAYS trade with the trend – in an uptrend, ie, bull market you should buy, and in a downtrend you should short or be out. So just understanding this one concept can neutralize almost every mistake that you could make.
#2 – Buy below support, yes below – meaning a spring, which is simply the support areas below the market and sell at resistance (short above resistance – an upthrust) which is previous highs above the market.
#3 – Have the humility to accept when you’re wrong and get out.
That’s the gist of it.