Trading Rules

These are my general guidelines that I follow. With rare exceptions I follow these rules:

Before Entry:
1. Identify the direction of the stock and why it is going in that direction. Is the stock trending, or is it a pattern breakout.

2. Determine the stop loss at which the position will be exited if the trade goes against the anticipated move.

3. Determine the expected price target based on pattern breakout.

4. Take half the position off the table if the stock reaches the price target. Additionally, adjust the stop out point (a trailing stop).

5. For reversal patterns like head and shoulders or double tops, take the position in anticipation of the breakout, with the stop at or just past the shoulder hieght.

6. For continuation patterns, enter at end of day following a breakout but only as long as the breakout is sustained.

7. For trending uptrending stocks, determine the diagonal support, (or diagonal resistance for downtrending stocks). This will behave as both the entry and exit point of the trade. Enter when the stock is at or near the support on the trend side. Exit is placed just below the support.

8. Maximum position size is that at which 2% of the account will be lost upon being stopped out. Most continuation patterns will be entered half before the breakout and half at the break.

9. Scale out proceedure is used for stocks that are profitable where half the position is exited upon reaching the price target, and the other half held until stopped out by the trailing stop. Additionally, the have out position can be reentered upon a stock bounce in favor of the position.

10. Market outlook is important to determine ratio of position types Long:short. For Bullish markets, the ratio of long to shorts is to be 2:1. Bearish markets the ratio of long to short is 1:2. Neutral markets the ratio is 1:1.