While some rules are meant to be broken, trading rules should never be messed around with. You will need to follow these rules strictly if you don’t want to end up incurring heavy losses on your trade. The trading world is as serious as it can get, and honestly there is no fooling around with it. Below are some of the most potent trading rules sticking to which can at least help you avoid the risks of running terrible loses. I would even suggest making a copy of it and paste is to the wall right behind your computer, just so every time you sit to trade you are reminded to follow these rules.
Cut Your Losses
One of the worst mistakes in trading is to let your loss get out of hand. Loses are devastating, can hamper you emotionally as well as diminishing your trade capital, when your primary aim in trade should be to protect it. That said, cutting your losses is a great way to be touch success in trading.
Let Your Profits Run
If you have purchased a stock, and have started to make a profit out of it, make sure that the profit goes as far as it can. Close the trade only when it starts going it the reverse direction. You make profits less than half of the time. Therefore it is imperative that you make sure that you make made the most out of the move in stock. Rule of thumb is to remember that the few profits that you make must be able to outweigh the many losses that you have incurred.
Follow the Trend
You might know a lot about trading but it is necessary to follow the trend every time you make a trade. As they say, trade with the trend. If the stock has taken an unusual momentum, something you aren’t familiar with, it’s best to let that trade go than running the risk of serious losses. I mean, what the point buying a stock that’s headed in the wrong direction? Like somebody said, in trading, trends are the only friends you have. So better stick with them.
Don’t make a trade just for the sake of trading. If the prospect of the potential trade doesn’t make you feel comfortable, you should at best let it go. One should never make a trade when the conditions aren’t favorable. A mature decision always goes a long way to your benefit.
Never Act on a Tip
Trading isn’t a passing affair, if you know what I mean. There will be people who would be more than pleased to give you a tip of two that has worked towards their trading success. But let me tell you here, the trading market is a volatile one, dynamic- and hence, what worked for him doesn’t necessarily mean that it will work for you. So, NEVER act on a tip. They are seldom good. The worst part? You will stick to it even when the security starts heading against you. Not to mention the trading rules that you are going to break to stick to that tip in the futile hope of getting success.