5 Rules You Must Follow to Make Money in Any Market

Rule One:
Never Trade Just to Trade.
Having an itchy trigger finger can turn a trader into his own worst enemy. This is a classic mistake. We've all made it. I may even go so far as to say that this is what I see as the most common mistake among professionals AND non-pros.

Savvy traders know that there are times when the best action is to take no action. I never wake up one day and say, "Okay, I need to find a good play. I'm going to pore over a list of good stocks and pick my favorite one. I know that it is best to first get a good feel for exactly the way the stock trades before considering it as a profit opportunity.

We don't think that a trader who does such a thing can have a good enough feel for the stock's price action, or for the other major players who are controlling the stock's price movement. The savviest players on Wall Street know several great companies for months or years before buying the stock.

Rule Two:
Only Buy When Both the Fundamentals and the Technicals Tell You to Buy.
There are two stars that must be aligned: Technical and fundamental. If I purchase a stock, it is because the situation is such that a smart technical analyst and a smart fundamental analyst would both agree that the time to buy is NOW.

Generally, once I know that the company is well positioned from a financial standpoint, I then make sure that I have a good understanding of what the charts are telling us. Then I get more detailed by checking who the major buyers, sellers and current shareholders are, evaluating their reputation and whether new major shareholders are entering the picture.

Rule Three:
Never be Greedy; Small Profits Never Hurt Anybody.
As long as I am profitable, I am happy. Remember, I only swing at the pitches that I love. I only stick with a position because I think it has strong potential. I never stick with a trade because I have not yet achieved the profit that I want.

The market doesn't owe us anything! If anything, Mr. Market owes me a couple of losses. I never look a gift horse in the mouth. Waiting for the profit that you feel is owed to you is another classic emotional mistake and an emotion that makes a trader his/her own worst enemy.

It's just like holding a stock because you are down 5%, and you only want to sell at a profit or at break even. Mr. Market doesn't know you and doesn't care what you paid for the stock.

I make moves strictly based on what the indicators are telling me. NEVER based on the price of the stock.

If I moved based on stock price alone, I would never hold a stock for a 500% increase.

Rule Four:
Welcome Unsuccessful Trades.
What the heck is this guy talking about? Don't worry, this is not the "go down with the ship" philosophy.

My rules are simple. They are what has built fortune after fortune for myself and my clients, so listen to me here: I might limit my downside to 7% or I might cut my losses at 20%. Very often, I hedge my stock positions with stock option contracts that limit my downside to a few percentage points.

My stock screening system usually keeps me from buying stocks that get crushed. Okay, I know that you can't guarantee that a stock won't take a beating here and there. And when I'm trading options, we take an occasional beating. But if I'm right more than I'm wrong, and I make a lot more than I lose, then I've achieved my goal.

Some of the biggest winners that I have had - ones that have traded thousands of percentage points higher - have traded lower first. If I hadn't run them through my stock screening system, I would have limited my losses to 7% and, therefore, missed those winners that mean the world to your overall portfolio.

Rule Five:
Whenever Possible, Utilize Options as a Way to Generate Income in a Flat Market.
You can take in additional income every month by selling covered calls.

Every month there are ways to have from 1.5% - 7% of the value of your stock positions either deposited into your account, or sent to your home in the form of a check.

Every single month, so many investors leave an absurd amount of money on the table. The worst part about it is that the only reason they don't pick the found money up off of the ground, is that they don't have eyes that have the ability to see it. My heart goes out to those people who don't understand this simple strategy, just as it does to people who literally have vision problems. It's simple, really, and all that you have to do is take a few hours to understand it. IT'S WORTH IT!