Continuation from Friday…..Never Commit To Anything: Never attach your forecast to any fixed outcome. If you do, you will shift from a position of power to a position of fear and hope. Opening up your trading strategy to risk and losses. Instead, remain flexible and move with the market even if your forecast indicates otherwise.
Move Stop Losses: As the market or stocks continue to move with the main trend you must continue to move your stop losses up or down to avoid unexpected developments and to protect your profits. By doing so you eliminate the unnecessary risk of losing money.
Don’t Be Afraid To Be Out Of The Market: There is absolutely nothing wrong with being out of the market completely. Sometimes for prolonged periods of time. It is better to sit on the sideline than to lose money. Particularly, when the direction of the financial instrument you are looking at is unclear.
Don’t Wait Until The Trend Changes: DO NOT hold your losing position in hope of a trend change. That is how people lose most of their money. For instance, the bears who have been holding short positions throughout 2013 have been decimated (even though they will eventually be right). Once again, always move with the main trend.
Get Out As Soon As You Realize That You Have Made A Mistake: Even if your in-depth research shows one thing, the market might do something completely different. At such times you might realize that you have made a mistake. Do not hold your position and hope that the market will reverse itself and allow you to exit at a better price. Liquidate your position immediately.
Always Wait For A Confirmation: Do not establish a position until and unless your work is confirmed by the market itself. In most cases the market will do so by setting new highs or new lows. Only after receiving such a confirmation should you establish a trading position based on the main trend of the market and/or based on your own work.
Avoid Hope & Fear: This is probably the main reason why people lose money in the stock market. They trade and/or invest on emotion rather than technical, timing or fundamental work. They hope, pray and fear instead of following the main trend. Do not behave in such a fashion. Never trade based on hope or fear. Always follow the rules.
Avoid Loss Averaging: Contrary to a popular believe, it is not a good idea to buy more stock when the price declines after your original purchase. Buying more at a discounted price means you are going against the main trend and not with it. While you lower the overall purchasing price, the main issue remains. The main trend is down. Instead, you should average up when the stock price is going up. That way you are going with the trend.
Now that we have looked at the overall guidelines to profitable stock market operations, let’s take a quick look at a simple set of specific trading rules.
Rules For Trading In Stocks
RULE 1: Buy at new high prices or old top levels.
RULE 2: Buy when prices advance above old low prices.
RULE 3: Sell when prices decline below old top levels or high prices.
RULE 4: Sell at new low price levels.
RULE 5: Wait to buy or sell until prices CLOSE above old highs or below old lows on the daily charts. Closing price is incredibly important.
RULE 6: Use stop losses. Your capital and your profits must be protected at all times with STOP LOSSES. Implement stop losses at 1-3 points above or below your original price and at the time of the original trade.
RULE 7: Do not lose money.
To Be Continued Tomorrow…….
