In the stock market your success entirely depends upon the way you trade and adhere strictly to your trading rules. When you follow these rules properly you make money. However if you break your own stock trading rules the most likely outcome is that you will lose money.
Once you prepare a reliable set of stock trading rules it is important to keep them in mind. Here is one discipline that can reap rewards. Read these rules before your day starts and also read the rules when your day ends.
Rule 1: Follow your rules correctly: It is but natural that when you develop a set of rules they are to be followed. It is human nature to want to vary or break rules and it requires continued effort and discipline to act in accordance with the established rules.
Rule 2: Cut your losses from 5% to 15% when you are wrong without question: Some traders have an even lower tolerance for loss. The key point here is to set a proper stop loss level within the limits of your tolerance for loss. Stay informed about the performance of your stock and stick to your stop loss point.
Rule 3: Never risk more than 3% of your capital on any one single trade: There are many old traders and also there are many bold traders. But there are never any old bold traders. Protecting your capital base is fundamental to successful stock market trading over time.
Rule 4: Master one style that suits you well: Keep learning and getting better at this one method of trading. Never jump from one trading style to another. Master one style rather than become average at implementing several styles.
Rule 5: Never set price targets: This is a style that will allow you to get the most out of rising stocks. Simply let the profits run. Realistically, it is far more difficult to judge the tops. Never feel a stock has risen too high too quickly. Be willing to give back a good percentage of profits in the hope of much bigger profits.
Rule 6: Take all valid signals that show up: Don’t make excuses. If there is a perfect signal for entering a particular stock you have no excuse not to take it.
Rule 7: Make price and volume your guides: Never listen to any opinion about the stock market or individual stocks you are considering trading or are already trading. Everything is reflected in the price and volume.
Rule 8: Involve yourself in other creative activities apart from trading: Successful stock trading isn’t solely about trading. It’s also about emotional strength and physical fitness. Reduce the stress every day by taking time off the computer and working on other areas. A stressful trader will not make it in the long term.
Rule 9: Be an above average trader: In order to succeed in the stock market you don’t need to do anything exceptional. You simply need to not do what the average trader does. The average trader is inconsistent and undisciplined. Ask yourself every day, “Did I follow my method today?” If your answer is no then you are in trouble and it’s time to recommit yourself to your stock trading rules.