Trading Within Your Means Is Key to Success

I am asked quite often how I have managed to stick around as an options trader for as long as I have -- well over 15 years and counting. I refer often to the successes and failures along the way, and learning about myself -- my behavior under certain conditions and how I have dealt with adversity. I consider trading a metaphor for life, and we can extract some of the same principles of action and behavior simply by taking an introspective look into our own lives.

When we see opportunity in front of us, our minds often race quickly to the greed side of the financial emotional spectrum (greed on one side, fear on the other). The opportunity window is often small and narrow and timely, hence our thought is, "strike hard, boldly and swiftly." That's a good idea, except what if that turns out to be wrong?

There are no guarantees, right? Yet, if we have control over our behavior, then we can be in charge of our accounts and control how much is lost or won in specific situations. I have seen more traders lose it all from mistakenly taking too much size on a trade or risking too much capital altogether, going 'all in' -- or some ridiculous and childish action such as this.

While it may be fun to show off and be 'king of the mountain,' you're only going to eventually get pounded, as the 'trading gods' frown upon such behavior. Those who establish rules of engagement, risk management and control are the ones who will survive in this difficult and endlessly intriguing world of trading.

For me, the riches from trading come from a long period of work, sometimes winning and sometimes losing. My biggest and best gains have never come from large-sized bets, rather they were sized appropriately for my given risk tolerance. Trading with too big of a size may work for some in the short run, but you'll be taken out over a long period of time and with little to show for it, other than a few good stories.

Trading is always uncertain, events can happen beyond our control that can strip away our wealth in a moment's notice.

The number one rule of trading is to trade within your means, trade with size that lets you comfortably sleep at night. Don't be seduced by the perceived 'guarantee' of a big win -- whether it's you or someone else who discovers it. Always have skepticism, don't break your rules and if you win, that's terrific. If you don't win, then you hopefully won't be wiped out and can live to fight another ...1 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

Read the full story and get access to the Real Money Pro trading floor.

There’s no substitute for a trading floor to get great ideas, so Jim Cramer created a better one at Real Money and blogs there exclusively. We then added legendary hedge fund manager, Doug Kass, with his exclusive Daily Diary and best investing ideas. Staffed with more than 4 dozen investing pros, money managers, journalists and analysts, Real Money Pro gives you a flood of opinions, analysis and actionable trading advice found nowhere else, and allows you to interact directly with each expert.

Already a Subscriber? Please login.

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.