I've come to understand that I'm more of a trader than an investor now. To be more specific, I seem to fall under the classification of swing trader. I tend to hold my trades for 1-3 months at a time usually. Sometimes I might open positions for a year but doesn't necessarily mean I'll keep it there for that long. With that in mind, here's a list of rules that I try my best to abide by.
1. Cut losses short and let winners run. Meaning if the stock drops more than a certain % (varies depending on stock itself), sell it. But if the stock is on its way up and you're already in a good position, let it keep going up instead of taking profits early.
2. Be very careful if things are working out too well. You don't want to get complacent and make mistakes in your analysis. It's best to be more careful if things are going too well your way.
3. Keep an open mind and listen to both bullish and bearish views. There might be information that can be a game changer to your position.
4. Set an exit point before you enter your position. That way if things don't work out the way your analysis says, you'll still be able to protect your losses. Don't set it too high/too low either. At most, leave a 25% leeway for volatile and/or cheaper stocks but try and keep it at or below 10% when possible.
5. If you're scared to sell when things are going your way but the market is looking unstable, get out of the market. Better safe than sorry.
6. If you're making a lot of mistakes in your analysis, take some time off. Better to clear your mind and free yourself of possible biases that might have lodged in the head.
7. Make sure to write down your reasoning for each trade you make. This will allow for analysis later and reduce future mistakes. It can also open up possibility for refining your trading system.
8. If you're uncertain of how a stock is going to perform, don't buy it. If you've already bought it, sell it and wait till you have a better grasp on its direction.
This rule is a work in progress for options trading:
9. Limit the amount of contracts traded to 100 each. It's ok to buy options of the same stock but spread it out between different expiry dates and/or strike prices. Unless the open interest for it is high.
That's all for now.