Monday, January 16, 2012

2012 Dragon Trading Refreshment

10 rules must remember before you start trading intra day.

1. Never rush into a trade. Always reach the market at least 15-20 minutes in advance with your trading list in place.

2. Trade with a calm mind, maintain a sound balance between personal life and life in the share market; don't let the two aspects interfere.

3. Don't enter a trade if you are unsure of the trend (if prices will move up or down). Preferably start trading around 10.10 am (markets begin at 9.55 am every weekday; weekends are a holiday) to know the clear market direction.

4. Never risk more than 10 per cent of your trading capital in a single trade.

5. Over trading kills, never do over trading.

6. Remember that no one can predict the exact highs and exact lows. So never try to catch them.

7. Always maintain strict discipline in your trades. Remember to keep a strict stop loss and booking profits is a must (So that you know how much you can afford to lose).

8. Booking profits is very important and booking loss at the right time is even more important.

9. Never let a profit turn into a loss; always keep booking profits and raise your stop loss accordingly.

10. When in doubt the best thing to do is 'Get Out', and don't 'Get In' when in doubt. Simply put, when in doubt prefer staying at home and enjoy the company of your loved ones.

Stop Loss
■Set protective stop as soon as you enter a position. The stop price should be decided before entering a position.
■Move protective stop to break-even when price moves in your direction (more than the average daily range).
■It might be a good idea to sell a part of your position (for e.g. one third) for a reasonable profit. By doing this, there will be less pressure to sell early since you have already cashed in; and if the trade goes against you, there is at least some profit from the trade.
■Use trailing stops for the rest of the position to ride the move.

Psychology
■Never trade impulsively, stick with your edge/plan.
■Never ever add to a losing position (unless you already have a plan thought out to scale into a position at different entry points); add only to winning positions (progressively smaller amounts).
■Don’t be influenced by others; stick with your edge/plan.
■It is important to forgive yourself when you make a trading mistake despite your best efforts.

Technical Analysis
■Reduce or dispose your position if a trend line you are watching is violated, especially with heavy volume. Don’t hope that the trend line break is a fake one.
■Never trade based on indicator divergence (with price) alone. Divergences can go on for a while, with price continuing to make higher highs and the indicator continuing to make lower highs (or price making lower lows with indicator making higher lows).

Money Management
■Try not to lose more than 2% of your capital on a single trade. Stop trading to re-examine the situation if you lose more than 6% of your capital within a month or have consecutive losing trades.

Hard Work
■At the end of the day, record your trades and the thought process (including charts if possible) that went into making those trades.

Note: Some expert traders scoff at the idea of placing a stop as soon as a trade is entered (they might have mental stops for their positions). But if you have trouble cutting losses and if there is a chance that you could freeze like a deer in the headlights when you are hit with a huge loss, it is best to set a stop as soon as you enter a position.

Follow these simple stock trading rules and here’s to happy trading!

Good Luck!

1 comment:

webmaster said...

Reduce or dispose your position if a trend line you are watching is violated, especially with heavy volume. Don’t hope that the trend line break is a fake one.nice post