1.PLAN YOUR TRADE AND TRADE YOUR PLAN. You must have a
trading plan to succeed. A trading plan should consist of a position, why you
enter, stop loss point, profit taking level, plus a sound money management
strategy. A good plan will remove all the emotions from your trades.
2.THE TREND IS YOUR FRIEND. Do not buck the trend. When the
market or stock is bullish, go long. On the reverse, if the market is bearish,
you short. Never go against the trend.
3.FOCUS ON CAPITAL PRESERVATION. The most important step
that you must take when you deal with your trading capital. You main goal is to
preserve the capital. Do not trade more than 10% of your portfolio in a single
trade. For example, if your portfolio is $10,000, every trade should limit to
$1000. If you don't do this, you'll be out of the market very soon.
4.KNOW WHEN TO CUT LOSS. If a trade goes against you, sell
it and let go. Do not hold on to a bad trade hoping that the price will go up.
Most likely, you end up losing more money. Before you enter a trade, decide
your stop loss price, a price where you must sell when the trade turns sour. It
depends on your risk profile as of how much you should set for the stop loss.
5.TAKE PROFIT WHEN THE TRADE IS GOOD. Before entering a
trade, decide how much profit you are willing to take. When a trade turns out
to be good, take the profit. You can take profit all at one go, or take profit
in stages. When you've recovered your trading cost, you have nothing to lose.
Sit tight and watch the profit run.
6.BE EMOTIONLESS. Two biggest emotions in trading: greed and
fear. Do not let greed and fear influence your trade. Trading is a mechanical
process and it's not for the emotional ones. As Dr. Alexander Elder said in his
book Trading For A Living, if you sit in front of a successful trader and
observe how he trades, you might not be able to tell whether he is making or
losing money. That's how emotionally stable a successful trader is.
7.DO NOT TRADE BASED ON A TIP FROM A FRIEND OR BROKER. Trade
only when you have done your own research and analysis. Be an informed trader.
8.KEEP A TRADING JOURNAL. When you buy a stock, write down
the reasons why you buy, and your feelings at that time. You do the same when
you sell. Analyze and write down the mistakes you've made, as well as things
that you've done right. By referring to your trading journal, you learn from
your past mistakes. Improve on your mistakes, keep learning and keep improving.
9.WHEN IN DOUBT, STAY OUT. When you have doubt and not sure
where the market or stock is going, stay on the sideline. Sometimes, doing nothing
is the best thing to do.
10.DO NOT OVERTRADE. Ideally you should have 3-5 positions
at a time. No more than that. If you have too many positions, you tend to be
out of control and make emotional decisions when there is a change in market.
Do not trade for the sake of trading.