Top 10 Trading & Investing Rules
The Financial Tap
Top 10 Trading & Investing Rules
1. Trade the Trend
“The trend is your friend” may be the most widely used truism in investing…and it’s directly
applicable to the study of Cycles. With Cycles, we attempt to identify significant Lows that mark
the start of new trends. If you always trade with the trend and never trade against it, you’ll
significantly increase your odds of trading success.
Trading a trend with Cycles is fairly straightforward in concept – if a longer term Cycle is moving
up, buy the troughs of a shorter Cycle; if a longer term Cycle is moving down; sell the tops of a
shorter Cycle.
2. Work for Optimal Trade Entries
Optimal trade entries are those that occur when the underlying asset is finding its Investor Cycle
Low. These lows occur 2-3 times per year, generally after frightening drops, and most often in
concert with major, trend-changing events. Trade entries at these lows typically have strong
risk/reward profiles.
3. Stop Losses
Each position must have a stop loss. Know when to cut your losses and never be afraid of
missing a rally. If the position is going against you, get out and regroup. Leaving a trade with a
small loss is easy, but allowing a small loss to balloon into a large one is inexcusable, and sets
the scene for a catastrophic loss in a portfolio. Too many investors stubbornly hold onto losing
positions rather than admit that price did not move as they thought it would.
4. Protect Capital First…Then Worry about Winning Trades
A natural extension of #3, protecting capital is the single most important step in wealth
management. All the winning trades and associated gains are worthless if you give them all back
through a few lousy portfolio-busting trades.
Avoiding losses is about letting go of the idea that each trade must be a winner. Once you
understand that you won’t, can’t and don’t need to win every trade – and that missing a rally is
just fine – you’ll be able to exit trades without regret while losses are still
small. And if you ensure that your losses are small, you can be successful with only
modest winning trades.
5. Position Sizing
Keep your positions in check relative to your overall portfolio size. Learn to fully
understand each trade, especially its setup and probability of success. Since no two trades are
alike, you should adjust your position size according to the risk/reward profile of each trade.
Also be sure to track your trading results – when you’re doing well you can be more aggressive and
when results have been mixed, you should trade more modestly.
6. Leverage and Options
Unless you’re a true expert, avoid significant leverage. The only times you should consider
leverage or options are at the beginning of new Secular or Investor Cycles. This is because the
odds of success are the greatest at these key Cycle Lows. Plus a nearby Cycle low offers a tight
stop.
7. Investing with a Plan
Trading without a plan is a proven losing strategy. Whether you follow the Market Cycles via The
Financial Tap or some other system, you must always have a plan in place which includes trade size,
conditions for entering a trade, and reasons for exiting a trade. Think
through them all in advance so that, no matter the market conditions, you’ll know how to respond.
Also make sure to ask yourself some key questions: “Why am I buying/selling here? Does this fit my
plan/strategy? Am I likely to question the trade (for non-plan compliance) in the future?”
Trades go against investors all the time, even when the trades were entered via a well- defined
strategy and according to a preset plan. Losing trades are normal – they are the price of trading.
Losses provide you with the opportunity to tweak your strategy and improve your plan.
8. Treat Investing Like a Business
In order to be successful, one must approach trading and investing as a business and not as a
hobby. Investing should be one of the most important aspects of your life, right after
spirituality, family, relationships, and personal healthcare. You’ve likely spent years working to
earn your wealth; you need to treat your wealth with the respect it deserves.
Understand what you’re investing in, why you’re investing, and what your expectations should be.
Never solely rely on an online service, advisor, index fund, or wealth manager. Take control of
your personal financial future, get educated, and understand
where every dollar of your wealth is invested.
9. Don’t Force a Trade – Wait For an Optimal Trade Setup
Even the most experienced investors have to fight the urge to trade unnecessarily. For a
variety of reasons, investors generally overtrade…and thereby greatly diminish their overall
returns.
It’s better to wait for an optimal trade setup – one that fits your trading plan; These trades have
much greater probability of success than trades taken impulsively. Over time, taking higher
probability trades will provide a much higher winning percentage and far greater portfolio returns.
10. Trade within Your Means
Trading is as much about avoiding significant losses as it is making gains. Significant losses are
difficult to overcome, and can directly affect your quality of life. There are NO shortcuts to
financial success and the freedom it affords. Success in the markets must be earned. Only trade
with money that you can comfortably lose. Never trade with borrowed money (credit cards/line of
equity/margin), have patience, and be realistic with your expectations.
About the Financial Tap
The Financial Tap publishes two member reports per week, a weekly premium report and a midweek
market update report. The reports cover the movements and trading opportunities of the Gold, S&P,
Oil, and $USD Cycles. Along with these reports, members enjoy access to three different portfolios
and trade alerts. As these portfolios trade on varying timeframes (from days, weeks, to months),
there is a portfolio to suit all member preferences. If you’re interested in learning more about
The Financial Tap and the services offered, please visit https://thefinancialtap.com/landing/try#
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