To be a successful trader you have to follow strict rules with regards to trading. These are some of the rules from experience:
1. DYOR stands for "Do Your Own Research". This is really important as people that just go by other peoples research are really gamblers and do not learn anything. On top of that there is no guarantee that the other person who you are following may have ulterior motives behind their tips or research.
2. Never over trade. This is so simple to do so you need to get on top of this quickly before you end up having to monitor more shares than normal. Also this could lead you to trading on a higher margin.
3. Try to limit loses to 2% of your trading capital. This is a good idea to get used to as by having a strict money management rules will mean you being in the game a lot longer. Remember it's not a race but a marathon!
For example for a 2% trade:
- If your starting capital is £10000.
- The maximum you are willing to lose is £200 on any particular trade.
- If you were betting on an index trade and your stop is normally 40 points then the maximum trade allowed will be £5 a point.
- Never go beyond the 2% rule as it will mean more risk and more likely chance of you losing your starting capital quicker.
4. Keep emotions out of trading. Don't fall in love with a share as this will cloud your judgement.
5. If in doubt close the trade. You should be confident in your trade and if you start to doubt the trade then it's not for you.
6. Always use stops losses. This is the only way to protect and stop yourself from a accumulating a large loss. People that don't use stops can lose a great deal, these people are gamblers and will have numerous excuses to justify not having stop losses.
7. Place limit orders. This basically means you have to set your targets and take profit from this trade. This stops you from being too greedy.
8. Take some profits early. This helps you to pay yourself from trading (See 3 contract rule).
9. Keep a detailed record of every trade and the reason you entered it like a trading journal. This will give you a better picture of your trading and you can use it to learn from your mistakes.
10. Only trade when you're fully fit. So don't trade when your ill or depressed as this will affect your trading significantly.
11. Trade in the direction of the trend. They say that the "trend is your friend", so going against the trend is what gamblers would do. The odds are in your favour by trading with the trend so why go against it?
12. Never be too greedy.
13. Buy at support and sell at resistance.
14. Never chase a share, let it come to you.
15. Place your trades by limit orders(if possible), I place my limit trades after the market is open and close them at the end of the day,This will protect you from the gap downs or gap ups and this way you don't have to watch the screen all day long. This will also cut the emotions out of placing a trade.
16. Have a decent trading capital to start trading with, ideally around £10000 is the bear minimum as this will allow you to have 50 trading losses. People with less starting capital tend to break the 2% rule of trading so your starting capital is important for you not to risk to much on any trade.
17. Invest in a decent real time software if your day trading, as delayed charts simply are not accurate enough. If you're an end of day trader then use end of day charts from a decent company like MetaStock for example, which is what is used for all the chart examples on this site. It's only worth investing in a decent software once you understand charts so that you can get the most out of it.
18. Stops should only be moved once it moves in your favour. Only move the stop in the direction of your trade and not further away. They are there to protect you so don't go moving them in the wrong direction once the trade has started.
19. Always look at more than one time frame.
