Rules |
You Are
Here : Home > Rules |
It is very easy to jump into stock investment bandwagon following
others to make money, but without strong investment philosophy
straight from beginning, it is quite difficult for you to be successful.
Not only in stock market but in any investment decision you ever
do. Having money to invest is just not enough. After all, you
aren’t going to invest with your medical fund are you ?
Lying at home without proper medication just because you’d
lost the money in the stock market should be the last thing you
ever want to be happened. Under normal circumstances, you should
not seriously consider investing unless you had satisfied at least
one of the three following conditions :
-
You have six months income worth in savings.
-
Your current assets equal to your current
liablities.
-
You have just acquired a sudden windfall
or inheritance,
which should be though as capital and not as current income
These are a set of guiding principles that will help you learn
how to Trade or Invest and Prosper to achieve your financial goals.
I can not guarantee that they will make you a millionaire overnight
but they will certainly help you to get started. Over the time
you will quickly see the benefits of these rules and your financial
prosperity will grow significantly !!! Some of these Rules are
incredibly simple and obvious. So if you want to be successful
in the trading or investing there are some rules to be followed
by violating these rules, you will definitely on the losing side
of the game.
-
HAVE INVESTING GOALS : Understanding your
objectives is the major part of successful investing, and many
don’t have them since the very first day they start investing.
Ask youself, do you invest :
-
For short – term, medium –
term or long – term?
-
For your kid’s education, buying
new homes or for retirement?
-
For income ( Dividend, Bonus ) or for
growth ( capital appreciation)?
Specific goals can direct you to specific
investment plans. Having definitive investment plans will then
make your stock investment practice much easier. More importantly,
you are not influenced by the crowd, not easily tempered by
the bull market and not panic in bear market.
-
PLAN YOUR TRADE AND TRADE YOUR PLAN. You
must have a trading or investment plan to succeed. A trading
plan should consist of a position, why you enter, stop loss
point, profit taking level, plus a sound money management strategy.
A good plan will remove all the emotions from your trades.
-
THE TREND IS YOUR FRIEND. Do not buck the
trend. When the market or stock is bullish, go long. On the
reverse, if the market is bearish go short. Never go against
the trend.
-
FOCUS ON CAPITAL PRESERVATION. The most important
step that you must take when you deal with your trading capital.
You main goal is to preserve the capital. Do not trade more
than 10% of your portfolio in a single trade. For example, if
your portfolio is Rs.100000, every trade should limit to Rs.10000.
If you don't do this, you'll be out of the market very soon.
-
KNOW WHEN TO CUT LOSS. If a trade goes against
you, sell it and let it go. Do not hold on to a bad trade hoping
that the price will go up. Most likely, you end up losing more
money. Before you enter a trade, decide your stop loss price,
a price where you must sell when the trade turns sour. It depends
on your risk profile as of how much you should set for the stop
loss.
-
TAKE PROFIT WHEN THE TRADE IS GOOD. Before
entering a trade, decide how much profit you are willing to
take. When a trade turns out to be good, take the profit. You
can take profit all at one go, or take profit in stages. When
you've recovered your trading cost, you have nothing to lose.
Sit tight and watch the profit run.
-
BE EMOTIONLESS. Two biggest emotions in
trading: greed and fear. Do not let greed and fear influence
your trade. Trading is a mechanical process and it's not for
the emotional ones. As Dr. Alexander Elder said in his book
Trading for a Living, if you sit in front of a successful trader
and observe how he trades, you might not be able to tell whether
he is making or losing money. That's how emotionally stable
a successful trader is.
-
KEEP A TRADING JOURNAL. When you buy a stock,
write down the reasons why you buy, and your feelings at that
time. You do the same when you sell. Analyze and write down
the mistakes you've made, as well as things that you've done
right. By referring to your trading journal, you learn from
your past mistakes. Improve on your mistakes, keep learning
and keep improving.
-
WHEN IN DOUBT, STAY OUT. When you have doubt
and not sure where the market or stock is going, stay on the
sideline. Sometimes, doing nothing is than doing some thing.
-
DO NOT OVERTRADE. Ideally you should have
3-5 positions at a time. Not more than that. If you have too
many positions, you tend to be out of control and make emotional
decisions when there is a change in market. Do not trade for
the sake of trading.
-
YOU CAN NOT PREDICT THE FUTURE. Stop believing
it and stop wasting your time trying to do it. No one ever has
nor ever will be able to "predict" what is going to
happen in the future. Run away markets tend to keep running
away. Cheap stocks seem to get much cheaper and expensive stocks
more often than not, get much more expensive. do not even bother
trying to justify a market simply let it do what it wants to.
-
STOP THINKING LIKE AN INSTITUTION. The big
money management funds are not interested in outperforming the
stock market. as strange as it seems. They are interested in
managing money. So when they tell you to "diversify",
only invest in blue Chip stocks with a solid past earnings,
great management teams, solid this and that.... treat it for
the non-sense it is. Unless you want poor returns.
-
QUESTION EVERYTHING AND EVERYONE, EVEN ME.
Never blindly believe anything you read or hear about. Be careful
about what you read and even more careful about what you believe
in. after all an opinion is only some one’s belief.
-
I AM IN THE STOCK MARKET TO MAKE MONEY NOT
TO WIN A PUZZLE. No one can beat the market. Make a fortune
in a bull market play defensive in a bear market. Good returns
be easily attainable in the right conditions but do not give
it back when the market conditions change.
-
LOSING IS PART OF THE GAME. Good traders
always know they will come back to win, and do not worry about
looking stupid because they have lost in some trades. In fact,
you will probably have more losers than winners. However, your
losses must be kept small and you should allow your winners
to run.
Above all the rules, there is one single most
important element in Trading or Investments success: YOU. The markets
have been the same and will always be the same. YOU decide whether
the trade or investment is a success or failure. Losing is also
part of the game. Don't give up and keep improving. Be disciplined,
determined, persistent, and most of all enjoy your trading.
|
