RULE #2

Insurance!

It is ok to be wrong. Just make sure you plan for the possibility. You do this by insuring yourself.

Before you make any trade, make sure to setup a STOP loss.

Apple right now is around $100 a share. Right now I would consider 4% a loss I am willing to have. So that means if I buy 100 shares at $100, I will immediately set a STOP loss at $96.

If I short 100 shares at $100, then I will immediately set a STOP loss at $104.

This is VERY important. Most people can't do this as a fulltime job, so they need someone watching the stock market when they are busy doing something else (driving to work, at the gym, in a meeting, etc).

The one annoying thing about a STOP loss is that if you decide you want to get out of your buy/short, then you need to cancel the STOP loss first, then make your trade. Sometimes this can cause missed opportunity, since we are looking for a gain in the amount of cents to dollars sometimes, and time causes fluctuation delays in the stock price. I don't know of a better solution yet for this. Just practice and get as quick as you can at it. It is more important to be protected, than not protected.