The Doc's Stock Trading Rules

In light of the recent fall in the market, I thought it would be useful if we set some Trading Rules which will help traders make and not lose money. If you have comments or other rules that you think we should add to this then please add your comments & I will add them to the rules.

The Doc's Stock Trading Rules

1. Trade only with what you can afford to lose. Do not trade beyond your means

2. Be cautious in your trade. Do not be a day trader if you are a newbie to trading. Day trading is complex and more people lose money on day trading than on buy and hold trades. Leave the day trading to experts. For newbies, day trading benefits only your Remiser/Broker.

3. Holding for the long-term is not a wise move for stock trading. Long-term investments are only for risk averse investors who are more interested in dividends and long-term stock growth. Trading is best done in shorter periods to take advantage of price fluctuations. Even if you buy at 20% above a low and sell at 20% below a high, you will do better than a long-term investor who holds a stock for 5 years or more. Long-term is for Investors not Traders. Decide who you are, an Investor or Trader, then act accordingly.

4. Set Stop Loss targets - Always set a Stop Loss price for every trade. This is very important and will always minimise your losses. This can be in the form of a percentage below the market price or based on TA, but always set a stop loss. Learn more here
http://www.investopedia.com/articles/02/050802.asp

5. Take Profits – As prices rise, take profit. Many people lose money because they never take profit on winning trades and often winning trades become losing trades. You can run with prices but selling small amounts of stocks to take profits is always a good idea.

6. Run With Price Rises – If the stock price rises, run with it, BUT always set trailing stop loss prices. That way as long as prices rise you continue to benefit but if it turns against you, you will still make money. Learn more about trailing stop loss here:
http://www.investopedia.com/articles/trading/03/080603.asp

7. Follow the trend. In any market there will be industry trends and individual stock trends. Don’t go against the trend. In TA you can draw trend lines and if the stock follows a trend assume that will be the future direction until there is a firm indication that a change in trend has occurred. If global markets are falling then assume your market will also follow that trend, similarly if markets are rising you can be safe in assuming that your market will rise as well. It may be a laggard or a leader but it will generally follow the trend. Unless there is a specific factor affecting your market otherwise follow the trend.

8. Have a trading system and use it. Change it only if it is flawed or if it has failed you when you have used it in the proper way. No system is fail proof but having a system is better than no system at all. Technical Analysis or Fundamental Analysis or a combination of both can be used to set up a trading system.

9. Don’t let emotions rule. Whether it is buying or selling use rational analysis not emotions to make a trade.

10. Share knowledge and ask for advice. No matter how much you know about trading and whether it is TA or fundamental analysis, sharing your knowledge and learning from others will only make you a better trader. BUT make sure you only listen to rational advice and not rumours.

Copyright © 2006 Talking Stock with the Doc