"Trading Rules to Abide By"

Followings are some suggested trading rules that you might want to follow in order to help you in producing consistent and repeatable results, and therefore led to the steady growth of your trading capital:

1.   A complete and thorough understanding of the market and the instrument that you are trading in.

2.   Develop a system that suits your style of trading and temperament. You essentially want to create advantage for yourself and be like the house, i.e. like the casinos, so that you can develop an edge and grow your trading capital steadily and consistently over time. You have to therefore know your system and your strategies very well.

3.    Plan your Trade and Trade your Plan - It is important to have a plan before even commencing your trade. Make sure the trade you intended to make has a good risk/reward ratio; a rule of thumb of this ratio is about 3:1.

4.    Cutting Losses Short - One of the most important trading rules. When your trading position is going against you, it's the market way of telling you that you are wrong or you are too early. Your view or opinion does not matter here and your first and foremost concern is to preserve your trading capital when it comes to your stop-loss level. Get out of the position and re-examine the situation or wait for the next entry opportunity.

5.    Know exactly how much you are willing to risk before the initiation of the trade - that amount should typically no more than 2% of your total capital, some traders advocate 1%, the key is to know where your comfort level is and what's best for you and go with that.

6.    Always trade in the direction of the trend - choose the strongest trending instruments, something that you are comfortable with, and take your position while emerging from retracements.

7.    Do not average down, never ever - remember, the market can remain "illogical" much longer than your pocketbook can remain healthy, this is one of the trading rules that is often violated by new traders.

8.    Never over trade - trade up to the number of trades and value you are comfortable with and never more than that. Once you found that your position is too big for your comfort level, reduce it down to your "sleeping point", i.e., a level that you can sleep well without anxiety.

9.    Adequate capitalization - never to trade with "scared" money, make sure that you trade with money that you can set aside and you have more than sufficient fund to trade.

10.    Place protective stops - it is important that you place your stops close enough to your current position and yet not too close so that you get whipsawed out of your position or areas where floor traders know where the likely stops are and move the market there before the underlying trade back in the normal range.

11.    Have an exit plan - set trailing stop-loss when profit is building, and exit when the market tells you so or when your target is met.

Trading Rules in the form of Quotable Quotes

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