You’ve heard of trading rules like…
“Buy low sell high”
“Do not average into your losers”
“Focus on a few markets instead of everything”
“Do not catch a falling knife”
And you probably think they are important trading rules, eh?
Buy low sell high
You can make money buying low and selling high. But don’t forget, you can also buy high and sell higher (or sell low and cover lower).
For trend followers, we like to buy high and sell low.
Do not average into your losers
If you have no proper risk management, averaging into your losers is a sure-fire way to lose your account.
But if you have proper risk management, averaging into your losers is a viable way to trade the markets.
You could break your trade into 4 parts. By risking 0.25% on the first part, 0.25% on the second, another 0.25% on the third, till you reach the full 1%.
You’re still averaging into your losers. The difference is, you know what to bail out when you’re wrong, and you keep the damage to a minimal.
Focus on a few markets instead of everything
If you’re a day trader then yes, trading a few markets would make sense since you can’t monitor the intraday moves of 50 markets.
But, what if you’re a swing or position trader?
Well, you have lots of time to analyze the markets as you’re trading the higher timeframes.
So, it’s not an issue to trade 100 markets.
If a swing trader only trades a few markets, he/she would limit his profit potential.
Do not catch a falling knife
I myself don’t believe in catching tops and bottoms.
But then you’ve got a legendary trader like Paul Tudor Jones who said this…
“I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.”
So, the takeaway is this…
When it comes to trading rules, there’s no one size fits all.
You’ve got to decide what works for you (and not rely on others) because their trading strategy might be the opposite of yours.