Trading Rule # 5 & 6

Trading Rule # 5: Trade in 2 to 4 different Stocks at a time with strict Stop Loss.

 

As soon as you start trading in a day, you should have a protective stop loss.

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 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.

The above paragraph is most important and I suggest read and re-read it. I am saying this with my personal experience. As I have mentioned earlier, long back when I started trading, I used to buy hugh quantity of only one stock where I felt of it going up, and as that stock used to go down following the news, I used to wait for some time thinking it will come up again, and, as it used to go down little more then I used to get scared of hugh loss in case if I exit. And due to this I used to incur big losses.

Now, there are many such traders who still find themselves at this stage, and as they’ll read over this line, they might be feeling the pain of losses they have already incurred.

It’s when I learned the lesson through pain that the best strategy is to follow the morning news or evening business news (One day before trading). With this you will get some insight about which sectors are expected to do well and where you may have some down fall.

Now, the important thing to keep in mind here is that the sectors which are not expected to do well or which are expected to be in bearish trend for the coming trading session are equally important for you as the ones which are expected to be in bullish trend . Because if you select 2 stocks of the bullish sector, you should select 2 stocks of the sectors which are expected to go down and short sell them, so that you will win in either of the side.

i.e. for bull market the 2 stocks that you have brought for up trend and in bear market the 2 which you have brought for down trend. Does that make sense?

To help you with this, I can provide you with an automated excel checklist which will give you entry/exit point with accuracy, its compliment from my side so leave your comment and receive it from me.

Trading Rule # 6: Be Persistent

This topic is something you would be familiar with if you have read my post “Are You Mentally Prepared before Trading”. In case if you missed, let’s just summarize it again for you here. Great personalities like Thomas Edison & Henry Ford had one thing in common- They remain persistent to one idea they thought of and as a result of this they not only became successful but, they also learnt the great lesson of life that persistence is all it takes to accomplish anything you want.

Specially if we talk about share trading then we find many people who give up at the first sign of opposition i.e. if they lose in 2-3 trading then they quite and come back after a month or so and again repeat the same trend and then keep on doing this until they realize that this market stuff is hard to crack.

On the other hand, they simply trade on their gut feelings rather then strategy. What we should keep in mind here is that once we are ready with the trading plan and strategy, we should stick to it even if we incur some losses at the early stage, its only with the time and  practice that we master it.

The best strategy I can suggest here, in fact, what I personally implemented is buy a less quantity of stocks but buy it regularly and learn to exit well in time. Mostly it happens that people hesitate to exit when they are making loss thinking that it might come up again or they even hesitate to exit in case of gain becoming greedy of making some more out of it. If you analyze it deeply you will understand that this turns out to be the most dangerous step in trading and you should never let this habit in practice. 

Always fix a percentage in either case i.e. whether you are at loss or at gain always and always exit at your fixed percentage. Keeping this in mind I have added the percentage box in my checklist where I can set my own figure of gain and stop loss percentage.

If you wish to test my checklist, leave your mail id on the comment and I can send it to your inbox.
Successful traders find a formula and stick to it. I would suggest a trader, particularly a novice trader, should adhere to one or two carefully selected trading patterns that work best for him/her. The need for a plan, a strategy and applying it in a consistent, methodical manner can not be overemphasized.