Tuesday, August 16, 2016

10 Commandments of Successful Trading

Division of Risk Capital Into Equal Parts

Risk Capital is the amount of money which a trader is ready to use in trading with the fact well known that the whole of the capital can also be lost in trading. This requires intelligent money management. Capital must be well divided in equal parts so that all the money is not put at stake in a single trade. Not more than 1/3rd of the capital should be used in a single position. This is to make sure that even if the position goes against the trader, the losses are manageable. Some spare capital should always be kept as liquid money for spontaneous opportunities created by the stock market for entering into a position.

Trading in Active & High Volume Stocks is beneficial

A Trader should generally make a point to trade in those stocks which are traded on a large scale by many traders and as such they are more active and  their trading volumes are high. This makes it easier for the trader to enter and exit from a trading position as ample liquidity in the stock makes it possible. A low volume stock can create problems as low liquidity may get the trader to get stuck in the stuck and this may result in a loss as stop loss levels might not be traded by others.

Trading Plan is a must for a trader

Trader is always advised to make a trading plan in advance of taking a position with clear cut entry, exit and stop loss levels. his helps in defining the trade as per the targets and loss taking capability. Without a good trading plan a trader might make small profits because of early exit from the trade or may incur huge losses because of lack of undefined stop loss levels.

Trading Should be Judicious

A trader should very well be aware that trading should be done in a disciplined manner and over trading should thus be avoided. A trader after making good profits in a few positions might tend to take heavy positions and thus might risk the capital with over exposure. If the trend of the market goes against the position of the trader it might result in huge losses because of unmanageable trading position.

Trading should be done in manageable number of stocks

Trading should be done in such a manner that it does not make a trader confused on account of too much positions. A good trade is that even if the position is held in 2-4 stocks at a time the Return on Investment ROI is good 12%-15% rather than taking position in 15-20 stocks but the ROI is 3%-5% on account of variable performance of the numerous stocks. So few stocks with good prospects are better rather than more stocks with meager performance.

Also READ : Trading Journal : The Must Have Tool

Good Trading System includes Short Selling

A Trader is expected to be free of bias. This requires that as the opportunity commands a trader should be able to accommodate his/her trading plan accordingly. This means that a trader cannot expect of having only a long bias i.e only think of buying. A trader should also be open for taking Short positions. Short Sell is quite handy at bearish times as a trader is able to reap profits from bearish conditions also.

Confidence is the key for successful trading

The greatest enemies in Stock market are emotions of fear & greed . Both these emotions are really powerful and have the capacity to cloud the judgment of the trader in a negative manner. A trader thus should get out from the grip of such emotions and should make it a point to base his decisions of trading in accordance to the trading system which requires confidence in it. A confident trader is more likely to succeed than a trader who may have a good trading plan and system but his decisions are marred by emotions of fear or greed.

Profit on every trade is not possible

As the market is supreme and also said to be always right so the outcome is that no one playing in the game organised by market can outperform the market always. A trader is always ready to take losses in anticipation of profits. The only thing is that the success ratio will only be good when a trader plans his loss according to his/her capacity. If the loss making trades are controlled through stop loss and the profit making trades are genuinely given time to reap good profits then a trader can aptly said to be a good trader. So a good trader should always be ready to face losses in some positions accepting the fact that every position cannot be a profit making position.

Part Booking of Profits is a boon for accumulating capital gains

There is a need of continuously monitoring the situation of the open positions in the market. A trader who is in profitable position must be watchful and should be open to take part booking of profits thus accumulating capital gain through positive trades. The rest of the position after part booking should be given time to reap more and when the targets are achieved then the trade should be successfully closed . The concept of part booking is beneficial for locking in some profit so that the objective of the trade remains on the right path till the achievement of the target.

Keep aloof of rumors

All the advisors, market gurus, analysts who are overboard in making forecasts about future prospects of a company, stock market have their own vested interests and sometimes some information is specially floated to be taken by innocent investors and traders as true . A trader should be vigilant enough of remaining aloof of rumors which are floated for some hidden purposes . The decision making of a trader should be unbiased and based on purely seen variables rather than some anticipatory aspects.

“ Average investors who try to do a lot of trading will only make their brokers rich.”
      -Michael Jenson, Finance Professor -Harvard.

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Required US Government Disclaimer & CTFC Rule 4.41

Futures trading contains substantial risk and is not suitable for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones financial security or lifestyle. Only consider risk capital that should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. CTFC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS SUCH AS LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. All trades, patterns, charts, systems, etc., discussed in this website or advertisement are for illustrative purposes only and not construed as specific advisory recommendations. All ideas and materials presented herein are for information and educational purposes only. No system or trading methodology has ever been developed that can guarantee profits or prevent losses. The testimonials and examples used herein are exceptional results which do not apply to average people and are not intended to represent or guarantee that anyone will achieve the same or similar results. Trades placed on the reliance of Trend Methods systems are taken at your own risk for your own account. This is not an offer to buy or sell futures interests.