Trading Rule # 1 & 2

Trading Rule # 1: Trading is a SIP not a Gamble

As we have discussed in the earlier chapter that most people come up with a mind set of doubling their money in share market and go back empty handed never to return again. They are the ones who enter into share market considering it as gamble and a chance of luck. whereas, their are  others who have a mind set about market as an opportunity to invest wisely and incur systematic returns with a proper planning and a well defined strategy.

No one would start a business without first ensuring everything that requires keeping up the business going, is well in place. But when it comes to trading people often try to put less money that to in one place and try to utilise more margin in terms of making profit.

Be it a trading or any other business an initial capital is required, every one has different strategy in mind as regards to the trading and, a different trading plan. When it comes to share trading we need to be very clear about the market sentiments and try not to put all the money in one stock.

When I first started trading, this was the biggest mistake I was doing by putting the entire fund in one stock and whenever the stock went down, I used to lose more than half the capital at one go. It’s with trial and error that I realized over the time and stood by a fixed plan which then worked.

On the other hand, if you are getting in to trading on your own, make sure you have the following:

·         Basic infrastructure in place.

·         Sufficient capital.

·         Computer dedicated for trading.

·         High speed internet connection

·         Best trading portal

I prefer “KEAT Prox” by Kotak Securities as my best trading portal which gives me best of the trading margin as well as a user friendly portal and best in class customer support.

Trading Rule # 2: Prepare a Trading Plan

Before you start trading in share market or in any other market a solid trading plan is absolutely essential. It is very important for your success. Without a trading plan you will be like an aeroplane which has no runway. A well defined trading plan is essential for long term trading success.

Most of the people who make a new entry in to the share market have the tendency of trading based on news and more over on chance basis. i.e. as the market opens they start buying stocks which are bullish or they start short selling stocks which are bearish during the first 15-30 minutes, thinking that they will make money fast with the stock movement and so on. However, most of the times it has been observed that they are the people who either incur great financial loss in one trade or keep losing some amount every day due to this uncertain behaviour, then their are few traders who trade on the basis of others reviews or someone else’s trading tip. Even if you make some money in this manner, it is not certain that you will be able to repeat the same profit pattern i.e. what if the next tip given by some one else doesn’t work? Or what if you didn’t get any tip or reviews? Hence, this idea can not be taken in to consideration for long trading or on a regular basis.

You need to develop a trading strategy that you yourself understand inside out.  You also need to consider the risk management because unless you know when to enter in a trade and when to exit, you will end up in losing. As mentioned earlier in my post the excel checklist designed by me will guide you more accurately about the entry and exit point for a particular stock at the beginning of the day trading.

Once you are ready with your trading strategy, it is very important to do a quality check before going live with it. As you test drive a car before buying, or you are on your way to the trial room before buying a new pair of clothe. Similarly, you need take a trial with your strategy before trading live.

Now there are many sites in the internet today who offer dummy platform with dummy cash but with live market, where you feel as if you are trading live though not with real cash. Once you have tested your strategy backward and forward here, you can be rest assured. On the other words, you will be more confident with your strategy rather than going blind.

Often, invalid trades are the result of our emotions: Fear, greed, impatience, overconfidence, etc. Other times, they stem from our mistakes, or pilot error as it is often called. Trading your plan is not as easy as it sounds, and most traders must work hard to develop the necessary skills over time. Consistently following the rules of an effective trading plan is part of what allows a trading business to make money over time.