We all understand that developing your own stock trading strategy is essential in becoming a successful stock trader, options trader or any other financial trader. But while you have a set of rules to trading you also need a set of rules in your trading strategy to control yourself while your trading.
To help develop your own set of rules for your trading strategy, where it be a specific options trading strategy, day trading strategy, stocks or derivatives. We are sharing our 8 rules for you to include in your trading strategy, as they are the core foundation for controlling your mind and emotion regardless of what you trade, or time frames you trade in.
You might be wondering why these rules are so good, it is because they have been collected from professional traders from across the world and over the last century.
1 – Cut Your Losses
One of the most important skills in achieving trading success over the long term is that you do everything in your power to ensure that your losses never get to big on any trade.
They will devastate you emotionally and drain your trading funds away. Remember trading is about working your trading funds into a larger pool of money, not working it to nothing, or driving yourself into the ground with fear.
Set you maximum loss on a trade or maximum fall from peak and stick to it. Sell when you need to sell.
When you conduct your research on different traders over the years you will find this rule regularly referenced if not in different ways.This will be the hardest things you need to do with when trading, as none of us like admit we are wrong. But remember keep your funds you need to fight and trade another day.
2 – Let Your Profits Run
You need to accept that as a trader you will be right less than you are wrong, so to make money you need to limit you losses and make the most of it when you are right.
By using a trailing stock within your trading strategy you can be sure that you lock your profits in, we have all seen graphs of stock that go from $1 to $10, and wish you were on that trade, but the question you need to ask is when would my strategy tell me to sell?
Learn to hold your nerve and don't feel rushed to cristalize your profits.
3 – Go with the Market Trend
Always trade with the trend, you need to understand the trend of the market and that stock sector is trading before you consider trading a stock. No one is good enough to catch the top or the bottom of a stock trend, so move with the crowed but be ready to step away from the crowed and let them keep going.
After all trading is about riding the wave with the crowed but making sure you not left holding the bill at the end of the night.
4 – Only trade when your trading strategy say to
Just because your a trader doesn't mean that you trade when ever the market is open, it means you know when to trade to make money and when not to trade.
We develop a trading strategy to know when to trade and when the system says trade we trade, but when it doesn't it means it. Follow your rules.
5 – Never Buy on a Stock Tip
Tips are dangerous never run into a stock tip, sure take a note and review the stock with your own trading plan strategy to see if it fits you and is actually showing buy signals that fit your plan.
Remember you have developed a trading strategy to suit you, be confident in your own plan and know that you don't need to look for tips to be successful.
6 – keep trades small and Trade Liquid Stocks
Managing and controlling risk is crucial. This can be easily don't by creating a limit to the amount of cash that you have invested at any time and how much you have in any single stock.
You want to limit your total investment in the market because major corrections could wipe out your complete portfolio and savings so you need to be prepared and able to trade the day after the correction.
You also need to trade stocks with good volumes traded, you don't want to be left waiting for buyers once you've decided to sell.
7 – Don’t Buy because it Looks Cheap
If a stock price is cheap, there is probably a very good reason for it. Only buying stocks that are trending up, not ones that look like they are gona trend up, remember trade with the trend. And trust your trading strategy.
8 – Keep it Simple, don't confuse yourself
This is not only a rule for trading stocks but a rule for life. To many people make their strategy to complicated that it tells you to buy everything or nothing.
If we can't explain you strategy in one breath, review it, and if you can't remember all of it, you might need to start again.
No comments:
Post a Comment