The last post dealt with overconfidence, so today I am going to provide you with a simple set of guidelines to keep in mind while you are trading.

Being right has little to do with making profits. Good traders make winning trades less than 50% of the time and they hit “home runs” occasionally. If their losses are small, then profits can be tremendous.

Successful trading requires that you know when you are wrong. Before you enter the market, always know what signs the market will give you to prove you are wrong. If you don’t know when you are wrong before you get in a trade, then you do not have a workable trading method.

Make sure you have a set of rules that you use to guide your behavior. These rules should fully detail the conditions under which you will open a position and take profits, and they should include information about how to know when you are wrong. Trade only when you meet all the conditions set forth in your rules!

A mistake means not following your rules. You can make money and still make a mistake by violating your rules. This is dangerous because it encourages the trader to repeat those mistakes. In contrast, you may follow your rules exactly and still lose money. This is a normal part of trading and occurs frequently. But you should still pat yourself on the back for following your rules.