1. Divide your capital into 10 equal risk parts.
2. Never over trade.
3. Never place order for BUY/SELL without stop loss conditions.
4. Never let profit turn into loss.
5. Trade with the trend.
6. Never take lead you may lose heavily.
7. Never try to be over smart.
8. Don't trade if trend not clear
9. Don't follow tips only.
10. Use the right orders only.
11. Withdraw portion of profits.
12. Don't be whimsical about closing your trades.
13. Never buy a stock to get dividend.
14. Never average your losses.
15. Take big profits and small losses.
16. Sell short as often as you go long.
17. Never buy any stock just it is low priced.
18. Pyramid your trades correctly.
19. Decrease your trading after a series of successful trades.
20. Don't change your opinions during market hours.
21. Don't follow the crowd - they are usually wrong.
22. Buy on rumor and sell on news.
23. Take windfall gains when you get.
24. Keep your charts up to date.
25. Preserve your capital.
26. Nothing ever new occurs in market.
27. Markets are never wrong opinion may be.
28. Never permit speculative ventures to turn into investments.
29. Never try to predetermine your profits.
30. Never buy a stock just because it is low priced or don't sell just because it is high priced.
31. Look for reasonable profits.
32. Buy as soon as a stock makes new highs after a normal reaction.
33. Ban wishful thinking in the market.
34. Leaders of today may not be leaders of tomorrow.
35. Don't be too cautious about reasons behind the moves.
36. Trade only the active stocks.
37. Bear markets have no support and bull markets have no resistance.
38. The smarter you are the longer it takes.
39. It is very hard to get out of a trade than to get in.
40. Don't talk about what you are doing in the market.
41. When time is up, markets must reverse.
42. Control what you can; manage what you cannot.
43. Big movements take time to develop.
44. A good trade is profitable right from the start.
45. If you cannot make money trading the leading issues you cannot make it trading the overall market.
46. Avoid partnership in trading accounts.
47. The human side of every person is the greatest enemy of successful trading.
48. Money cannot be made every day in the market.
49. As long as market is acting right don't rush to take profits.
50. Never buy a stock just because it has fallen from a great high, nor sell a stock because it is high priced.
We request you to follow above rules strictly and religiously to maximize your profits in the stock market.
10 Trading Rules for Successful Trader
The following are 10 most important rules which can turn you a consistent Winner if applied properly with discipline
1. Divide your Risk Capital in 10 Equal Parts.
As part of the Successful money management, it is always advised to divide your Risk Capital (which you can afford to lose) into 10 equal Parts and at any given time none of your Single Trade should have more than 3 parts of your capital in it even if you are in a winning position. At the same time always keep some spare money for any Buying Opportunity, which may come any time.
2. Trade ONLY in active & high Volume Stocks/ Futures.
Many Traders get stuck with stocks for want of liquidity. Always rely upon Stocks which have reasonably high volume over a period of time. High Volume are always advised for easy Entry, Exit and Stop Loss. In low volume stocks the spread is too high and chance of Stop Loss limit getting failed is too high as there would be no Buyer or seller at your Stop Loss Level.
3. Come Prepared with a Trading Plan
Successful traders always keep their Trading Plans ready before entering into any transactions. One must prepare a Watch List or Probable candidates for Day's trading and remain focused on the movement of those stocks only. For example a Stock 'X' is on verge of a Bullish Breakout from any pattern or stock 'Y' has declined substantially after an initial sharp up move or stock 'Z' is close to an important support level. Successful trader would concentrate on the movement of those stocks only and enter the trade as soon as stock 'X' gives the anticipated breakout or stock 'Y' starts an upmove or stock 'Z' breaks the support level to initiate a trade for quick gains.
4. Never over Trade
This is the most common mistake committed by Traders, particularly after a Streak of winning Trades. This mistake generally not only wipes off all the profits, but puts traders in heavy losses. In order to remain in market while making consistent Profits, under no circumstances, traders should go beyond their Risk Capital.
5. Trade in 2 to 4 Stocks at a time with strict Stop Loss.
In a Bull move, most of the stocks move up and similarly in any Bear Move, most of the stock moves southwards. As a Trader you know this fact but can you Buy 20 Stocks and try to make profit in all the 20 stocks just because all are moving up or vice versa in a Down trend? What will happen if market reverses without any indication on any bad news? Would you be able to monitor all your trades in such situation? Smart and Successful trader would trade in 2 to 4 stocks with strict Stop Loss and keep a strict vigil to avoid any misfortune in case of any eventuality.
6. Sell Short as often as you go Long.
More than 90% of common investors/ Traders are 'Bulls' by nature. Because they love to see prices going up only. Stocks are bought by anybody/ corporate/ financial institutions/ Mutual Funds to make profit on rise. They have large holdings and mentally they wish and pray for the market to rise only. But facts are different. History shows that Bull Phases have shorter duration that Bear phases. So every stock that moves up will retrace back to 38%-50%-66%. Since 90% investors are Bulls by heart they normally do not book profit at higher levels to re-enter later at lower levels instead they prefer to increase their portfolio at lower levels. Successful Traders know how to capitalize such correction. They are always prepared to go 'Short' as often as they trade
7. Don't Trade if you are not Clear.
Many Traders, because of their daily habits trade even when there are no signals to buy or short. Normally such situation arrives after a sharp rise or decline when stocks are adjusting their values. While some stocks attempt to move up, few may be taking breather before next move. Such situation are often confusing. There is no harm in taking rest for a day or two or short period if the trend is choppy, unclear or doubtful, instead of putting your money at higher risk. On 'Long' side.
8. Don't expect Profit on Every Trade.
If you consider you are a smart trader who can make profit on every trade, you are 100% wrong. Always be flexible and accept the fact as soon as you realize that you are on wrong side of the trade. Simply get out of the trade without changing your strategy during the market; it may because you double losses.
9. Withdraw portion of your profits.
The business of Trading is excellent as long as you are making profits. Unlike other business your losses can be unlimited and rapid if market does not move as per your expectations. While in other businesses you may have other remedial measures available but in trading it is you only who has to control it. Traders have large egos particularly after series of successful trades and their tendency to enlarge commitments in overconfidence may cause major financial setback. Therefore it is must that trader must take a portion of the profit and put it in separate account. This is absolutely must for long term stability in the market.
10. 'Tips'/'Rumors' can ruin you sooner or later- Don't follow them.
Tips and Rumors are part of the game in Stock market. In most cases these are spread by vested interests through brokers, media, analysts, or other rumor mongers in the interest of any particular company well before their IPO's, or to reduce/enlarge holdings or whatever reason. But instead of relying on Charts which are the translated copy of Price Action of any scrip based on demand supply. While you may be lucky if you have had made profits on such 'Tips' but there are 100% chances that you are likely to be trapped in sooner or later if trading on 'Tips' or 'Rumors' is part of your strategy. Believe in Charts, act on Charts. There is no second best option.
10 Deadly Trading Mistakes!
The following are 10 most common but deadly Trading Mistakes, which traders should avoid at all costs. Anyone of them can literally destroy one's financial dreams and goals!
1. Trading for excitement & thrill Not for profits.
Many traders consider stock market as casino and trade for thrill and fun only. As soon as one has a losing trade, he wants to quickly make back the lost money. He thinks about the other things he could have done with the money, regret taking the trade and want to recover as quickly as possible. This in turn leads to further mistakes. Be patient and wait for the next high probability opportunity. Don't rush back in.
2. Trading with a high ego.
Many individuals who have remained highly successful in other business ventures have failed miserably in trading game. Because they have a fairly big ego and thought they couldn't fail. Their egos become their downfall because they cannot except that they would be wrong and refuse to get out of bad trades. Once again, whoever or wherever any one come from has does not concern the markets. All the charm, powers of persuasion, number of degrees & diplomas of business management on the wall or business savvy will not budge the market when you are wrong.
3. Three 4-letter words that will kill you! HOPE--WISH--FEAR--PRAY
If you ever find yourself doing one or more of the above while in a trade then you are in big trouble! Markets has own system of moving up & down. All the hoping, wishing and praying or being fearful in the world is not going to turn a losing trade into a winning one. When you are wrong just use a simple 4-letter word to correct the situation-GET OUT!
4. Trading with money you can't afford to lose.
One of the greatest obstacles to successful trading is using money that you really can't afford to lose. Examples of this would be money that is supposed to be used in any other business, money to be paid for college/school fee, trading with borrowed money etc. Ultimately what happens is that when someone knows in the back of their mind that they are risking the money they cannot afford to lose, they trade out of fear and emotion versus logic and no emotion. If you are in this situation It is highly recommend that you stop trading until you earn enough to put into an account that you truly can afford to lose without causing major financial setbacks.
5. No Trading Plan
If you consider yourself a trader, ask yourself these questions: Do I have a set of rules that tell me what to buy, when to buy and how much to buy, not just for the next trade, but for the next 10 trades? Before I enter a trade, do I know when I will take profits? Do I know when I will get out if I am wrong? These questions from the first part of a trading strategy. There simply cannot be any expectation of success if we can't answer these questions clearly and concisely.
6. Spending profits before you make them.
Nothing is more exciting than getting into a trade that blasts off and puts you into a highly profitable situation. This can cause major problems however, because this type of trade puts you in a highly euphoric state and leads to daydreaming about the huge profits still to come. The real problem occurs as you get caught up in the daydream and expectations. This causes you to not be prepared to get out as the market reverses and wipes off all your profits because you have convinced yourself of the eventual outcome and will deny the reality of the situation. The simple remedy for this is to know where and how you will take profits once you enter the trade.
7. Not Cutting Losses or letting Profits run
One of the most common mistakes made by traders is that they let their losses grow too large. Nobody likes to take a loss, but failing to take a small loss early will often result in being forced to take a large loss later. A great trader is not someone who has never had a loss. Great traders have made many losses. But what makes them great is their ability to recover quickly from a string of losses. Every trader needs to develop a method for getting out of losing trades quickly. Research and learn to apply the best methods for placing protective stop loss orders. The only way to recover from many (small) losing trades is to make sure the winning trades are much larger. After a series of losing trades, it becomes difficult to hold a winning trade because we fear that it will also turn into a loss. Let your profitable trades run. Give them room to move and give them time to move.
8. Not Sticking to your plans & changing strategies during market hours
If you find yourself changing your strategy during the day while the markets are still open, be mindful of the fact that you are likely to be subject to emotional reactions of fear and greed. With rare exception, the most prudent thing to do is to plan your trading strategy before the market opens and then strictly stick to it during trading hours.
9. Not knowing how to get out of a losing trade.
It's amazing that most of the traders don't have any clear escape plan for getting out of a bad trade. Once again they hope, pray wish and rationalize their position. It must be kept in mind that market does not care what you think. It does what it does and when you are wrong you are wrong! The easiest way to keep a bad trade from going really bad is to determine before you get in, where you will get out.
10. Falling in love with a stock (Just Flirt).
Many traders get fascinated by just a stock or two and look for opportunities to trade in those stocks only ignoring the other profitable trading opportunities. It is because they have simply fallen in love with a stock to trade with. Such tendencies can be suicidal as for as trading is concerned. It may cost any one dearly.
The A to Z of Technical Analysis
Advance/decline line Each day's declining issues are subtracted from that day's advancing issues. The difference is added to (subtracted from if negative) a running sum.
Failure of this line to confirm a new high is a sign of weakness. Failure of this line to confirm a new low is a sign of strength.
When a stock's or commodity's upward or downward trend has stalled, the sideways movement in price which follows forms a pattern. Some of these patterns may have predictive value.
Examples of these patterns are head and shoulders, triangles, pennants, flags, wedges and broadening formations.
A charting method originally developed in Japan. The high and low are described as shadows and plotted as a single line. The price range between the open and close is plotted as a rectangle on the single line.
If the close is above the open, the body of the rectangle is white. If the close of the day is below the open, the body of the rectangle is black. Congestion area
At a minimum, a series of trading days when there is no or little progress in price.
A price reaction of generally 1/3 to 2/3 of the previous gain.
Cup and handle
A pattern on bar charts. The pattern can be as short as seven weeks and as long as 65 weeks. The cup is in the shape of a U. And the handle has a slight downward drift. The right hand side of the pattern has low trading volume.
Double bottom/double top
These are reversal patterns. It is a decline or advance twice to the same level (plus or minus 3 per cent). It indicates support or resistance at that level.
Elliott Wave Theory
Originally published by Ralph Nelson Elliott in 1939, it is a pattern recognition theory. It holds that the stock markets follow a pattern of five waves up and three waves down to form a complete cycle.
Many technicians believe that this pattern can hold true for as short a time period as one day. However, it is generally used to measure long periods of time in the markets.
it’s the relationship between two numbers in the Fibonacci sequence. In general terms the Fibonacci series is 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89 - where the previous two numbers are added to derive the next number. 0+1 is 1, so the first number is 1. 1+1 is 2, so the next number is 2, and so on. The sequence for the first three numbers is 0.618, 1.0, and 1.618.
Fibonacci Ratios and Retracements can be applied both to price and time, although it is more common to use them on prices. The most common levels used in retracement analysis are 61.8 per cent, 38 per cent and 50 per cent.
When a move starts to reverse the three price levels are calculated (and drawn using horizontal lines) using movements from low to high. These retracement levels are then interpreted as likely levels where counter moves will stop.
Head and shoulders pattern
This can also be inverted. It is a reversal pattern and is one of the more common and reliable patterns. It is comprised of a rally which ends a fairly extensive advance. It is followed by a reaction on less volume.
This is the left shoulder. The head is comprised of a rally up on high volume exceeding the price of the previous rally. And the head is completed by a reaction down to the previous bottom on light volume.
The right shoulder is comprised of a rally up which fails to exceed the height of the head. It is then followed by a reaction down. The last reaction down should break a horizontal line drawn along the bottoms of the previous lows from the left shoulder and head. This is the point in which the major decline begins.
The major difference between a head and shoulder top and bottom is that the bottom should have a large burst of activity on the breakout.
Short for Know sure thing, the KST indicator was developed by Martin Pring. A weighted summed rate of change oscillator. Four different rates of change are calculated, smoothed, multiplied by weights and then summed to form one indicator.
Moving averages convergence/divergence (MACD)
The crossing of two exponentially smoothed moving averages. They oscillate above and below an equilibrium line.
When two or more indicators, indices or averages fail to show confirming trends.
Relative strength index (RSI)
RSI is an oscillator first introduced in 1978 by Welles Wilder in Commodities (now Futures) Magazine.
The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses on a scale from 0 to 100. When using RSI as an overbought/oversold indicator, Wilder recommended using levels of 70 or more as overbought and 30 and below as oversold. Generally, if the RSI rises above 70 it is considered bullish for the underlying stock. Conversely, if the RSI falls below 30, it is a bearish signal.
A comparison of an individual stock's performance to that of a market index. Most times the S&P 500 or the Dow Jones Industrial Index are used for comparison purposes. It is calculated by dividing the stock price by the index price.
A rising line indicates that the stock is doing better than the markets. A declining line indicates that the stock is not doing as well as the markets.
A price level where a security's price stops rising and moves sideways or downward. It indicates an abundance of supply. Because of this, the stock may have difficulty rising above this level. There are short-term and longer-term resistance levels. Support
A price level at which declining prices stop falling and move sideways or upward. It is a price level where there is sufficient demands to stop the price from falling.
Constructed by connecting a series of descending peaks or ascending troughs. The more times a trend line has been touched increase the significance of a break in the trend line. It can act as either support or resistance.