GOLDEN RULES FOR TRADING
- Divide your Risk Capital in 10 Equal Parts.
As
part of the Successful money management, it is always advised to divide
your Risk Capital (which you can afford to lose) into 10 equal Parts
and at any given time none of your Single Trade should have more than 3
parts of your capital in it even if you are in a winning position. At
the same time always keep some spare money for any Buying Opportunity,
which may come any time.
Many
Traders get stuck with stocks for want of liquidity. Always rely upon
Stocks which have reasonably high volume over a period of time. High
Volume are always advised for easy Entry, Exit and Stop Loss. In low
volume stocks the spread is too high and chance of Stop Loss limit
getting failed is too high as there would be no Buyer or seller at your
Stop Loss Level.
Successful
traders always keep their Trading Plans ready before entering into any
transactions. One must prepare a Watch List or Probable candidates for
Day's trading and remain focused on the movement of those stocks only.
For example a Stock 'X' is on verge of a Bullish Breakout from any
pattern or stock 'Y' has declined substantially after an initial sharp
upmove or stock 'Z' is close to an important support level. Successful
trader would concentrate on the movement of those stocks only and enter
the trade as soon as stock 'X' gives the anticipated breakout or stock
'Y' starts an upmove or stock 'Z' breaks the support level to initiate
a trade for quick gains.
This
is the most common mistake committed by Traders, particularly after a
Streak of winning Trades. This mistake Generally not only wipes off all
the profits, but puts traders in heavy losses. In order to remain in
market while making consistent Profits, under no circumstances, traders
should go beyond their Risk Capital.
In
a Bull move, most of the stocks move up and similarly in any Bear Move,
most of the stock moves southwards. As a Trader you know this fact but
can you Buy 20 Stocks and try to make profit in all the 20 stocks just
because all are moving up or vice versa in a Down trend? What will
happen if market reverses without any indication on any bad news? Would
you be able to monitor all your trades in such situation? Smart and
Successful trader would trade in 2 to 4 stocks with strict Stop Loss
and keep a strict vigil to avoid any misfortune in case of any
eventuality.
Sell Short as often as you go Long.
More
than 90% of common investors/ Traders are 'Bulls' by nature. Because
they love to see prices going up only. Stocks are bought by anybody/
corporate/ financial institutions/ Mutual Funds to make profit on rise.
They have large holdings and mentally they wish and pray for the market
to rise only. But facts are different. History shows that Bull Phases
have shorter duration that Bear phases. So every stock that moves up
will retrace back to 38%-50%-66%. Since 90% investors are Bulls by
heart they normally do not book profit at higher levels to re-enter
later at lower levels instead they prefer to increase their portfolio
at lower levels. Successful Traders know how to capitalize such
correction. They are always prepared to go 'Short' as often as they
trade on 'Long' side.
Many
Traders, because of their daily habits trade even when there are no
signals to buy or short. Normally such situation arrives after a sharp
rise or decline when stocks are adjusting their values. While some
stocks attempt to move up, few may be taking breather before next move.
Such situation are often confusing. There is no harm in taking rest for
a day or two or short period if the trend is choppy, unclear or
doubtful, instead of putting your money at higher risk.
If
you consider you are a smart trader who can make profit on every trade,
you are 100% wrong. Always be flexible and accept the fact as soon as
you realize that you are on wrong side of the trade. Simply get out of
the trade without changing your strategy during the market; it may
cause you double losses.
The
business of Trading is excellent as long as you are making profits.
Unlike other business your losses can be unlimited and rapid if market
does not move as per your expectations. While in other businesses you
may have other remedial measures available but in trading it is you
only who has to control it. Traders have large egos particularly after
series of successful trades and their tendency to enlarge commitments
in overconfidence may cause major financial set back. There fore it is
must that trader must take a portion of the profit and put it in
separate account. This is absolutely must for long term stability in
the market.
Learn How To Trade (CLICK HERE)
Back to
Main Page
