The goal may be to reach financial freedom or to maintain it through successful trading. Nothing is going to replace gathering facts and information, using that insight to make better decisions and thus ensure a greater chance of successful trading.
Don’t make the rookie error of thinking going in to trading is easy and or, a get-rich-quick scheme.
You do not have to know anything about trading before you get into it, but a great start is to make the commitment to learn all you can about trading. It isn’t likely that you’ll become a successful trader and make consistent profits if you do it as a casual sideline.
For many traders, better trading decisions come with time to build sufficient skill and experience, and let’s not forget that traders who are successful also love trading.
However, to get started here are seven top stock trading rules to live by.
1. Trading plan
You must have a trading plan. It’s time to dispense with the myth of easy money or that day trading comes naturally. The only thing that comes naturally is the ability and passion for the hard work trading entails. Sure, there may be innate skill, but often it is honed through diligence and the presence of certain behaviours and traits that are built up over time.
Professional investors read to build up a knowledge base and they know how to counter their biases when it comes to trading. A trading plan is an essential part of this. It’s the blueprint for trading. You may tweak it over time as you refine your trading strategy based on results. It should be tested using historical data before you apply it to a real-time trade.
Developing a strategy allows you to take some of the stress out of decision making because with a plan you will have identified your goals and your strategy to achieve them as well as the level of risk (i.e. how much of your capital are you willing to lose) you are comfortable with. Experts suggest no more than 1% of your account should be at risk on any one trade.
An important element of your trading plan is identifying when and where you are going to enter a trade, what the indicators will look like, what the pricing action needs to be doing to make you enter a trade. Just as importantly, it will tell you when to exit at a pre-defined target.
2. Use a stop loss
Don’t forget to implement a stop loss to minimise your losses. This is an order placed with a broker to sell an asset once it reaches a particular price point if the price moves against you. It’s used for short-term or long-term trading. It eases the pressure of monitoring a security daily. Set your limits in advance and the trade is automatically triggered.
The additional common tool is a take profits order. This automatically exits when your trade reaches your target profit level, again meaning you don’t have to sit and watch the price change constantly to manually exit.
3. It’s not a hobby
Do you have plans to dabble in the market? Some people are happy to devote just a couple of hours here and there as a trader to play in the market, but be wary of any claims of alleged success rates.
The adverts that claim an individual managed to turn a small lump sum into a treasure chest of money or can make some substantial sum through a nine-week course are never substantiated.
For many professional investors this is the day job and, as such, they spend time learning and reading about markets to increase their knowledge. Your job is to learn more about the markets you are trading in, to have practised on demos to develop your strategy and to practise building up your expertise the more you trade.