Rules to Successful Trading
Successfully trading the markets require strict discipline. A set of rules guide every trade just like the Ten Commandments to a devoted Christian.
The following hopefully sums up what every trader should keep in mind:
1. Be Discipline
The most important thing to remember is to be discipline in applying your rules. Rules often surface due to past, sometimes painful, experience that we do not wish to repeat again. Be wise and stick to your rules.
2. Manage Your Risk
Risk management is knowing your tolerance of losing money in absolute $ terms and never exceed that limit. Determine your position size based on your risk tolerance. Use stop loss orders to limit your losses in case the market moves the opposite direction of what you expect. If you have zero ($0) risk tolerance, try your trading strategies on paper. As you gain experience and confidence in your trading, your risk tolerance will tend to increase over time and you can adjust your trades accordingly.
3. Control Your Emotions
Everyone gets emotional when it comes to their finances. Anybody that trades the markets know the two driving force of large stock price movements, greed and fear. Don’t let your emotions decide a trade, you’re more often negatively surprised if you do. A good part of controlling your emotions is managing your risk. There’s less hesitation in entering a trade that fits your strategy and much easier to exit a trade that went south if the $ amount at risk is small.
4. Listen to the Market
By listening, I mean go right to the source (the charts). Action speak louder than words. The chart technicals is the action. Other information you hear such as news, media, people, etc. can be interpreted a million different ways; charts tell you how it is. It’s a good idea to invest time in learning technical analysis.
5. Be Patient
Unless you have an awesome amount of money that can move markets, don’t pretend just because you made a trade, it will go your way. Don’t jump the gun. Wait for the entry or exit signals even if it means you make less in your trade. Being patient will prevent you from entering a trade with anticipation of a move that may never come and avoid limiting your profits by exiting a trade too early. If a trade is not there or you came too late on a trade, move on. There’s plenty of opportunities out there.
6. Ride the Trend
A famous saying goes “The trend is your friend”. Use the force of the market in your favor.
7. Focus on Abnormal Activities
Abnormal market activities are identified by volume surge and/or extreme price movements. These often signal a breakdown in market efficiency that holds great potential for a profitable trade.
8. Learn From Your Mistakes
Even the best of the best traders make dumb choices. No one is perfect and mistakes are certain. It is essential that we learn from those mistakes and apply these to our rules and follow them religiously.
9. Keep it Simple
Stock trading shouldn’t be difficult. It’s a matter of identifying a stock that fits your strategies and the rest is simply following your rules. If you let your profits run and limit your loses, you only have to be right some of the time to be profitable.
10. Repeat
May sound obvious but stick to the strategies that work and revise/discard those that don’t and repeat!
Best to you and happy trading!