Five Rules You Must Follow To Profit in ANY market!

I have been reading e-mails from many of you, and I have even picked up the telephone a few times to answer some of your general questions.

I do this because I like to get a feel for who it is that reads what I write. I can't legally give anyone personalized advice, but I will give all of you five rules to follow in any market, ESPECIALLY this one. Following these rules has helped me bat 1000% over the past 11 months. That's right. Every trade in the last 11 months has been profitable, and the average trade returned 50.73%.

So once again, I am not allowed to give personalized advice, but I do appreciate your feedback. Please keep it up.

1. 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.

When I'm at bat, I like to wait until I get a pitch that is directly over the plate. The good news is that the pitch can be anywhere (over the plate, low and outside,) but I will never have a strike called on me for not swinging. But we must also assume that I only get one chance to swing. It’s either an out or a hit, so I’d better make it count.

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.

2. 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 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.

3. 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.

4. Rule Four: Always limit your downside by 100%.

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 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. But I only trade quality.

Some of the biggest winners that I have had 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.

5. 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.

This is something that I have been pounding the tables on since Dylan asked me to write this free commentary two months ago. 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!

Some markets are better than others to implement this strategy. As a matter of fact, today’s market climate is the best that we’ve seen in decades to use these strategies, so you can bet that I am taking advantage. If you are familiar with these strategies, you can make over 15% in a market that trades flat for 12 months. My goal has been to show these people the light. I hope that the response that I have read and heard recently reflects a benefit that many of you have shared.

Keep an open ear for next Tuesday’s commentary because Teeka and I will have some tips that I know you'll find most valuable.