Trading Rules To Keep In Mind When You Have A Robot Trading Idea

Anytime anyone invests, or trades, there are some basic rules that will help ensure success and hopefully profits. While basic selection of a stock trading idea is essential also, using the wrong rules to manage the position once in it can take a good trade and turn it into a loss very easily, and can lead to the formation of bad habits which are very costly in the long run.

Here are some rules, in no particular order when you have a stock trading idea:

1. Make sure you size the position right. The position size should be relative to the risk and reward on the trade. Ideally you want all your losses to be in the same range, over all symbols traded. So if your risk is .30, and you normally lose no more than 600 bucks on a trade, your position size should be no more than 2000 shares to keep it in line.

2. Have a target for the day in terms of profits and losses. Once the target is reached, either cut share size way back or just stop for the day. It is far too easy, especially with profits, to think that is the "house" money and then start trading more aggressively. 9 out of 10 times that will just lead to giving all the profits back and then some. There is nothing worse than having a great day and then turning that into a terrible day. Most of that comes through greed trading and not realizing that money in the account is real and its yours and should be protected. If you want to trade more, just cut the share size way down or risk only a predetermined amount of that gain - if you lose that much, you are done on the day.

Another issue comes with losses, where people just keep trading "trying to make it back" - to no avail. There are some days where you can do that, others you just cant. Not every day is good for trading a robot trading idea, if its not working, just stop - the market will be here tomorrow, and its a new day.

1. Make sure that the reasonable price target that can be achieved (key is reasonable, not hopeful, or greedy price target) is in line with the risk. If you think something can only trade up 20c, there is no way you would use a 1.00 stop risk - its simply not worth it. Ideally you want 2:1 reward:risk so that for every 2 losers from a robot trading idea, 1 winner can offset. Of course in real trading stuff does not always go according to a "plan" but you still have to have one to start with.

2. Do not have rigid, can't be bent rules on when to take profits. Stops should always be adhered to no matter what. But profits are a bit different. If you are looking to make 1.20 on a day trade from a robot trading idea, and it gets up up .98 and stalls out, either move the stop way up to protect profits, or even better just take the trade. Why let it go back down 1.00 to make another 20c gain - it just doesn't make sense, yet traders do it all the time.