Trading Rules

I think rules are NECESSARY to my trading sanity. While we all occasionally pick a disappointing stock, the rules help limit the amount of damage any one stock can do to my portfolio.

I divide stocks into two categories:
1. stocks I trade, which I generally hold for 3 months or less.
2. and stocks I invest in, which I hold or 6-12 months (and often much longer).

The following rules are associated with stocks I trade. I'll write about my Investing Rules in another post.
1. There are always opportunities to make money in the stock market. As such, there is no rush to spend money and buy things.
2. I allocate no more than 25% of either of my portfolios to a single trade. This limits my losses and allows me to balance my holdings.
3. I anticipate my sell price when I buy in. I sell at that price. I do this by placing a standard sell order or by using a Trading Stop Limit based on market price and volume. If the stock goes up after I buy, that's great and I don't sweat it. I look to lock in a profit of 50% or more with most of my trades, so if I hit my marker, I'm very happy.
4. If I decide to stay longer in a stock, I do it with free shares (there will be another post about this).
5. I know my threshold for losses. If I lose 6-8% on a stock, I will often sell and buy back in later. If it dips that low, it will probably keep going and offer me an opportunity to buy back in (Again, these are my Trading Rules, not my Investing Rules).
6. I do not buy a stock unless I have done due diligence. Tips from other people are nice, but at the end end of the day, my portfolio holdings belong to me.
7. Following up from the previous rule, I do not buy on impulse. It always leads to a loss for me.
8. I donate a portion of all my earnings. I just think helping others is the right thing to do, and if you're just looking at it from a financial perspective, it provides a nice tax write off.

Ok, do I break some of these rules from time to time? Yes, of course. I look at most things in life from a "progress not perfection" point of view and try to learn from all of my actions.