Note: I’m still working on these – adjusting the order and adding new ones as I discover them.
Whenever I feel I don’t have a handle on my trading I reread these to find areas I might be violating. If I don’t find any rules I’m not adhering to, I try to find the causes elsewhere. Maybe there is a new rule I should define.
- Capital preservation is job #1. Never lose more than 3% of my account value in one trade.
- Price is King. Never chase a stock. Never force a trade. There are plenty of possible trades out there. It is not a sin to sit out until conditions improve. Cash is a viable strategy.
- Trading is a business. It must make money. It is not a toy or a hobby.
- I will not “try” to trade I will “do.” If I can only try, I won’t do it.
- There is NEVER a reason to be short naked Calls. Being short naked calls is a great way to lose a lot of money very, very quickly.
- I repeat, there is NO reason to be short naked Calls.
- Minimum ROI for credit spreads is 25%
- Don’t be afraid to hold short Iron Condors, short Straddles to expiration day if the stock is close to center of the position.
- Cover short positions at least 4 days prior to expiration. The exception is if the position is close to the max loss or if #8 applies.
- Always know the total amount of risk in the account at all times. D0 not exceed total 30% risk to the account with options in any given month.
- Learn from mistakes and bad trades but don’t dwell on them beating myself up. Let it go.
- Be very afraid when I feel invincible – like if I should feel every trade I touch is golden. Make smaller trades when I feel this way because the market will humble me eventually.
- Be confident when I am feeling cautious. I make fewer mistakes during these times because I’m more focused and think more.
- Define my exit BEFORE I place the trade.
- Always use Stop losses when appropriate. I never know when I will need to get out of a position but am not able to trade. Let the computers get me out in those cases.
- Know myself. Know my weaknesses. Don’t trade over my head.
- Never double down on losing trades. Doubling down is not the same as trading around a core position. If I didn’t enter the trade intending to trade around a core position, don’t start when the trade moves against me. It’s better to close it than to risk losing more money.
- Violating any of these rules will lose me money. Don’t do it.
- Don’t give too much credence to what the pundits on TV say to do. I have a brain and I will think for myself. It is ok to take ideas from others so long as I do my own homework before trading the idea.
- Don’t trade in the first 15 minutes of the market open. The Bids/Asks are too wide and the market makers need that time to get a feel for the market. Exception is if I enter a limit order the night before.
Sean's Trading Journal 