Let me tell you the 24 Rules of Contract Trading

1. Capital Usage: Divide your funds into 10 parts. The risk per trade should not exceed 1/10 of your principal. In other words, manage your funds by limiting your position size so that each loss does not exceed 1/10 of your capital. For example, with 10,000 yuan, set a stop loss of 1,000 yuan each time. Beginners are advised to allocate even more.
2. Set Stop Loss When Placing Orders: Always set a stop loss when opening a position to protect your trade, rather than thinking about where to stop loss after opening.
3. Don’t Overtrade: This violates your capital management principles. Trading 10 times a day with each risking 1/10 of your capital will wipe out your principal. Be patient and wait for the best trades.
4. Prevent Unrealized Gains from Turning into Unrealized Losses: Once you have more than 3% unrealized profit, set a protective stop loss near the entry price to avoid losing your principal. Consider moving your stop loss to lock in profits; gaining more over time is more important than making quick money. Always prioritize avoiding losses before trying to earn.
5. Don’t Fight the Trend: If you’re unsure about the trend, don’t trade.
6. If in Doubt, Exit and Observe: When you’re unsure about the market, step back and avoid trading.
7. Trade Liquid Stocks: Only trade stocks with good liquidity. Stay away from illiquid assets, as they often don’t follow technical analysis well.
8. Diversify Risks: Trade multiple stocks instead of putting all your eggs in one basket.
9. Don’t Rely Only on Limit Orders: Be flexible. Consider market orders because sometimes the market moves very fast, and you may not be able to enter at your limit price. When stopping out, a market order can help you exit quickly if the price moves fast.
10. Don’t Exit Without Good Reason: Many traders get nervous with some profit, or hesitate to cut losses. When the price is moving in your favor, don’t miss out on large profits by exiting too early. Be patient, and if worried about profits slipping away, set a trailing stop to lock in gains.
11. Accumulate Profits: If your trading is successful, consider transferring part of your profits to a reserve account for emergencies. Don’t reinvest all your earnings into the same position to keep your gains growing.
12. Don’t Buy Stocks Just for Dividends: Avoid buying a stock solely for dividends, and don’t buy a coin just because of airdrops or staking.
13. Never Average Down: This is one of the biggest mistakes traders make—adding to losing positions, which can lead to ruin. Some bad market advice suggests “buy more in a bear market,” but it’s dangerous.
14. Be Patient with Entry and Exit: Don’t rush into trades or exit prematurely. When approaching your take profit level, avoid panic selling with a market order.
15. Never Take Small Profits and Large Losses: Don’t exit after earning a little, and don’t hold a position that leads to big losses due to reluctance to cut losses.
16. Once Stop Loss is Set, Do Not Cancel It Arbitrarily.
17. Avoid Frequent Market Entry and Exit.
18. Be Willing to Long and Short: Maintain a balanced approach—be willing to go long in a bull market and short in a bear market. Trading in line with the trend is the way to make money.
19. Don’t Buy When Prices Look Very Low or Short When Prices Look Very High: For example, if a stock is at 100 yuan and you think it’s high, wait until it drops to 1 yuan before buying, but it might still fall further.
20. Pyramid Positioning: Add to your position when the stock becomes active and breaks resistance for long positions, or when it breaks support for short positions. Pyramid trading involves opening a large initial position, then adding smaller amounts as the trend continues.
21. Choose Small Caps for Long Positions and Large Caps for Shorts: Bull markets favor small-cap stocks for doubling, while shorting large caps can be easier for covering later.
22. Don’t Hedge When Your Position Is Wrong: If you’re long a stock and it starts falling, don’t open a short hedge. Instead, cut your losses and wait for the next opportunity. Falling prices don’t mean you’re wrong; opening a hedge doesn’t mean you’re right.
23. Don’t Change Your Trading Plan Without Good Reason: Every trade must be based on sufficient reasons and executed according to your plan. Don’t exit prematurely before a trend reversal. Stay calm after losses, analyze the market, and adjust your plan accordingly.
24. Don’t Increase Position Size After Several Wins: If you normally trade 100 shares and do well, increasing to 10 times that size can be risky. A misjudgment could wipe out all your previous profits or more.