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Trading 101: The Most Important Rules to Trading

March 19, 2017

Success is not always a guarantee. But if you have a plan in place, you increase your odds significantly.

You see it’s not about having the “perfect” strategy.

It’s about the rule you abide by with each trade. Any one can trade a stock.

But it’s takes a disciplined trader to trade that stock well.

One of the biggest issues facing all walks of traders is a severe lack of discipline and structure in stock buying habits. Many fail to use stop losses, or even protect gains with a simple trailing stop loss strategy. Others risk far too much.

A friend of mine once made 325% in a week’s time on a trade.

Then he risked it all on the very next trade that cost him 90% of that 325% winning.

That’s a recipe for disaster.

A trader with no plan for action has already lost. Do you know when to exit on an up or down move? What stop losses or trailing stop losses do you have in place? Know these things, and set a plan so you won’t run into “crash and burn” scenarios as often as those with no plan.

  • Pros know when to just walk away from a trade. Remember, stocks don’t just move up. They also come down. With technical markers in place – such as with MACD, DMI, and RSI – traders can better pinpoint where things could all fall apart.
  • Lower expectations. Inexperienced traders expect to quit their day job and make a fast-paced, hot lifestyle out of trading. That’s not going to happen. No one ever became a brain surgeon or rocket scientist first year in. The same applies to trading. If you make a mistake, learn from it. Don’t repeat it.
  • Remove all emotion from your trading. That doesn’t mean you have to have ice flowing through your veins. It simply means you need to re-think your strategy. No matter what your emotion says, never allow emotion to dictate your trading action.

Never wait to take profits… If you have good profits in hand, take them. Exit half of the position and let the other half run. But don’t leave profits on the table for too long…

Here’s the number one rule to trading. Never, ever, ever risk money you cannot afford to lose. Don’t do it. Don’t be that person, the fool that thinks Wall Street is a get rich quick slot machine that does nothing but spit of winnings.

Traders have this tendency to risk it all, thinking they can do no wrong for a big payout. Don’t get greedy. If you can’t afford to lose $5,000 in a single trade, then why are you doing it? Trade half. Trade a quarter of it. But don’t risk it all. That may not sound like an exciting way to trade, but it’s been proven to protect traders.

The market is not a sure thing.

Always make sure you have a complete 360-degree view of what you’re buying before you buy it.

Fundamentally, take a look at what’s under the hood of the company with regards to earnings ratios. Technically, understand what’s happening in the short- and long-term with support and resistance.

Failure to plan can – and oftentimes will – lead to unnecessary loss.

Plan ahead and you’re ahead of the game.


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