Trader's Rule of Thumb



As I have mentioned in my previous blog post, there is an element of randomness in the stock market. Besides having an exit strategy, it would be good to follow a set of pointers to create a safety net for those who trades regularly.

1) The trading limit that you use have to be acceptable for you. Do not risk what you aren't willing to lose. Do not over leverage and always trade within your means. The saying "High risk equals high returns" should be rephrased to "High risk equals high losses or high returns"

2) Do not trade in a random matter, follow a strategy. Having a set of strategy to follow would make your trades more justifiable and in turn easier to fine tune. Be it sell on bearish signal crossovers or buy on oversold RSI. Find your most preferred strategy and stick to it. Find a trading platform with back test wizard function to give you more statistics for your strategy.

3) Take buy/sell calls from friends, brokers or brokerages with a pinch of salt, it is dangerous to follow blindly. Think about it, if those people have an infallible crystal ball, why are they still working? It is good to enter into a discussion, but one has to do their own homework before committing into any investment. If one cannot justify the reason to enter, then it is best not to.

4) Be familiar with the business model and the financials of the company you are trading. This should not be used as a reference for price entry, but rather a justification for safety. Businesses that defies common sense are best to be avoided. You do not want to trade a con stock that gets suspended indefinitely.

Hope these pointers would benefit you.

5 comments :

  1. Good post on trading. I would say trading is not easy and it requires a lot of emotional control and discipline to succeed.

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    1. Hi SGYI,

      Thanks for your comment. I agree, not to mention, one would also need experience and quick fingers. I have two friends who constantly buy and sell the same counter. One is consistently making profit, the other is suffering from a loss.

      I believe there are many factors that contribute to being a good trader.

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  2. I can relate to point one so well! Many people don't manage their position size. When the trade goes against them, they can't take the pain but close it.

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    1. Hi Pok Chow,

      Thanks for the comment. Yes, I think a certain amount of foresight has to be there in order to manage our risk.

      Delete
  3. Hi Hayden,

    I have contacted you via email :)

    ReplyDelete