Old School Rules For New School Traders

This week, the Topstep coaches are talking about the cardinal rules of trading. And, as an added bonus, Topstep’s head risk manager, Mick Ieronimo, put together a great list of rules for you to reference!

Old School Rules For New School Traders

by Mick Ieronimo

1. Know Yourself: Try to keep emotions out of your trading. So many exciting things can happen during the trading session, and it takes discipline not to get caught up in short-term noise. The markets are bigger than any one individual, respect them, and know your place. 

2. Start Small and Be Patient: When you are learning something new, you need to take it one step at a time. Many people want to become large traders, but it’s important to remember that the only way to get there is brick by brick. Trading smaller allows you to be more flexible in markets. Many new traders who buy new highs and sell new lows end up covering their trade for a loss where they should have been putting it on if they had waited for a nice pullback for entry.

3. Separate Your Trading From Your Desire to Make Money: Don’t let your P&L drive your decisions on when to get in and out of the market. Instead, get in and out of your positions based on what you see the market doing, not what your P&L looks like. 

4. Formulate Your Own Opinions: Many traders like to follow other people’s ideas and opinions. There are lots of smart people out there, but everyone is trading their own strategy in their own time frame. Find your niche and stick to it. Keep it simple; we can only absorb so much information.

5. Take Time Off When Things Aren’t Working: When your strategy is not working in the markets, take some time off to evaluate why things aren’t coming together. Markets can remain illogical longer than you can remain solvent!

6. If You Don’t Know, Don’t Trade: Sometimes, we may trade outside of our strategy or out of boredom just to “see what happens.” Be careful of this; if you don’t have an opinion in line with your strategy, sometimes the best trade is the one you don’t take. Think Capital Preservation, no reason to assume the risk if it doesn’t fit your strategy!

7. Don’t Trade Too Many Products: This business takes great concentration, and it’s difficult to fully concentrate when you are watching too many products. Don’t be a jack of all trades, master of none. Instead, find a product that fits you and your strategy, and learn it intimately!

8. Never Add To A Losing Position: Losers average losers. Leverage your positions when they are working, not when they are against you!

9. Limit your Losses: Risk less than you intend to make on the trade. If a trade isn’t working, get out quickly, you can always put it back on. Do not sit and hope it turns around. When you hope, you’re dead. Your winning trades should be able to make up for more than one losing trades, not the other way around. Don’t let one losing trade wipe out the previous days or previous trades profits. Markets can remain illogical longer than you can remain solvent!

10. Let your Winners Run: Many new traders are quick to grab profits when they see their P&L positive in the trade. Don’t get out just because you have made money on the trade; get out when the market tells you that the move is losing steam. 

11. Always Use Protective Stop Market Orders On Open Positions: Traders assume virtually unlimited risk, and you need to always protect against this risk. Goofy things can happen in the markets at any given time, and you need to ensure your account does not get wiped out if you have risk exposure. 

12. Know The Overall Market Structure of Your Product: What is the daily trend: up, down, or sideways. It’s easy to miss opportunities or risk when you only look at the market under a microscope. Always know the bigger picture. 

13. Lock In Big Winners: Hit the cash register when the market gives you windfall profits! You can’t go broke paying yourself! 

14. Stick to your Bias: Don’t initiate a short position if you get stopped out of a long position! Markets move back and forth up and down, don’t get cut to pieces buying highs and selling lows. 

15. Learn From Your Mistakes: All traders have losing days, losing weeks, and losing months. It is part of the business. Your job as a trader is to learn from the mistakes you make! If you can learn from your mistakes and prevent them from happening in the future, you will have fewer and fewer mistakes in your trading over time, leaving more room for profitable trades!