The Top 10 Trading Rules Experts Recommend
With all the risk encountered on the stock market, it helps to have a set of guidelines to follow for making your overall trading decisions.
While each expert has their own ideas of which rules are the most important to follow, here are some that usually come up among the top 10 trading rules.
Have a strategy and stick to it
Before you get started trading, do some critical research on a variety of different trading strategies and choose the one that best fits your financial goals and personal style.
Then stick with that strategy.
All of them can bring in profits, but not if you keep jumping from one to another.
Follow the trend
Dont try to buck the trend.
For many traders this is easier said than done.
Most people involved in stock trading are more independent minded than average and have a natural tendency to avoid doing what everyone else is doing.
For the sake of your profits, try to rein that tendency in a little.
Know when to cut your losses
This is another often heard piece of trading advice thats hot so easy to follow.
None of us like to admit weve made a mistake and simple hope keeps many traders holding onto a falling stock waiting for things to turn around.
Before you enter a trade, decide your stop loss price so youll know exactly when to sell.
Dont overtrade
Try to stick to 3 to 5 positions you know well and are satisfied with.
Any more and youre likely to start losing control and making unsound decisions.
Manage your risk
Before you even start trading for the day, choose your objectives, entry points, and exit points to avoid any rash decisions.
Never risk more than 5% of your account on one trade.
Also make sure you always have stop-loss and take-profit orders in place.
Do your research
Before you buy stock in a company learn as much as you can about it and where its headed.
That means more than just looking up its stock symbol.
Dig into information on how the company is run, their objectives, and what their customers think about them.
Be flexible
While sticking to a strategy is important, the stock market is highly dynamic place and its bound to surprise you with sudden shifts from time to time.
Accept this and be ready to change your decisions when needed.
Beware of your emotions
If youre tired, grumpy, or even overly optimistic, take the day off.
Same goes if youre not feeling well.
A mistake caused by emotions or plain tiredness could cost you thousands, which wont do anything for your mood or your health.
Question everything
Even the writers and editors at the top trading magazines and newsletters make mistakes.
They may have a lot more time to analyze stocks than you, but no analysis system is perfect, especially when used by imperfect human beings.
Its fine and, in fact, usually profitable to take cues from the experts, but you owe it to yourself to verify any information and tips you get before you invest.
Unfortunately, theres no one set of rules that will guarantee success on the stock market, but by using the top 10 trading rules set out here as guidelines, youre bound to improve your results.