Every aspiring trader requires a set of rules and groundwork on which their trading activities will be based on. So, each one of them should spend considerable time and effort to frame out such rules to build the foundation that can help them to conduct the trading on the business lines.
So, we hereby listing the core ingredients required by any trader (Aspiring and Professional) to learn and understand the mechanism of trading business, help protect them during bad times and keep them alive in the markets forever.
So, don’t kill yourself soon with the big blunders rather kill your big losses. Always have small trading losses and big profits so that you can learn the business when it is cheap to commit mistakes. The invaluable learning from these small mistakes will help you make big and consistent returns from the markets today or later.
So don’t read these rules just to gain knowledge rather learn them to frame up some new habits to get them within your core so to become a better and successful trader.
#1. Never Trade on Hope & Fear
Trade only on facts, rules, and pre-evaluated principles that you have tested and checked on the market moves earlier. Do not fall into the prey of taking trading decisions on your hope and fear.
#2. Never Put all your Capital in a Single Trade
Divide your capital into multiple sets and never risk more than a specific percentage of your capital on one single trade. We got a rule to not lose more than 5% of capital on one trade. That does not mean that on every trade we will incur a minimum lose of 5%. Refine your entry plan so that you can enter the trade on the smaller time frames with small and close stop losses of say 0.5-1% of the capital.
#3. Never Average a Losing Trade
Never buy more on a losing trade till you have sufficient facts and reasons to do so. Always buy or pyramid more at a price higher than the last buying price and vice versa in case of selling short. This proves to your justification that you are trading with the trend of the market. Do not add up to your positions when the fundamentals of the company still looks not much promising.
#4. Always Protect your Trade
Always use stop loss to limit your losses. Pre define the place to put your stop loss before committing a trade. If you cannot define such place then do not enter the trade.
There are two facets of trade protection :
Capital Protection – Never use more than a specific percentage of your capital as your stop loss to protect your seed or trading capital (Rule two)
Profits Protection – Stop-losses should be trailed so that you can protect your paper profits. This will ensure that none of your profitable trades will become losing ones. Trailing stop losses can be used as an automatic exit trigger in your trading plan.
#5. Know your Market
Always spend time to learn and understand in deep the market, stock or any instrument you are interested to trade in before committing any trade. Many things happens in a single market so it is important to understand and make a note of its characteristics, and behavior in similar situations.
#6. Keep Good Records
Records are like blueprints for a trader. It helps you understand how a stock or market behaves in different or similar situations. Keeping good records of your losing and winning trades detailing out your reasons for entry and exiting, the mistakes you committed as well as reasons for taking the individual trade will help you to reduce your trading mistakes and thereby increasing your profitable trades. Keeping a record of your profitable trades will work as a motivating factor during your down days to make you remember that if you can make the profits earlier than you can repeat the same again provided that you trade on right facts, reasons and not on hope or just mere expectations.
#7. Don`t Trade on News & Rumor
Always have justifiable reasons to enter or exit the trade. Markets move on a principle of discounting so you may not know how it will react on some specific positive or negative news. As markets can even fall on a good news if it has already rallied before the news actually broke out.
#8. Prepare a Trading Plan
A well defined trading plan is crucial for the success for any trader. So, any new aspiring trader should emphasize in developing a trading plan to help laid down the road-map to follow to achieve the trading goals. The trading plan must be designed so simple that it should help a trader avoid common trading mistakes and make consistent profits and more importantly gives a trader “A REASON TO TRADE”.
#9. Always be Eager to Learn New
Always be eager and hungry to learn something new about the markets and human behavior. Don’t feel any time that you know all there is in the world. Learning more about markets and human nature will help you in avoiding a lot of trading mistakes which may happen due to human weaknesses. Above all, have a vigorous desire to learn and understand the mechanism of trading business to be successful in trading.
#10. Never Break a Rule or you will go Broke
Whenever you break a rule. Go back to your learning book and write why you did that, what you learnt from these mistakes, how you can correct them to improve your performance and specially how you can prevent them from getting repeated again.
Sometimes you will fell unhappy after evaluating your reasons of committing such mistakes and sometimes you will pat your back to the good trading decisions you make…
But with passage of time only one things will happen – “LESS MISTAKES AND MORE BIG PROFITS”.
KNOWLEDGE IS POWER!