How to Make Profits in trading -Golden Rules

1. Have a definite plan of Trading and stick to it until thorough review forces you to make clearly reasoned adjustments to it.

2. Seek knowledge about markets above all else – knowledge is more important than gold or capital size in profiting from markets.

3. Markets discount future events and prices are formulated based on people’s analysis of the future. Markets make news; the news does not make price except as it impacts analysis of the future. It is more important to understand the implications of how a market reacts to news than the news itself is. Beware of a bearish market that suddenly reacts positively to what should be negative news and beware a bullish market that suddenly reacts negatively to what should be positive news.

4. Be willing to go long or short – let your guide be the trend of the markets.

5. When in doubt stay out and don’t get back in until you’re sure.

6. ALWAYS, ALWAYS, ALWAYS use protective stops and trailing stops.

7. Always check yourself – never trade because of fear or greed, but always because of a well reasoned analysis and plan of action.

8. Work hard to study different time frames and trends, top and bottom formations, and continuation patterns.

9. Watch the 50% retracement level of past moves for important clues to market action. (Watch also 38% and 62% retracement levels).

10. Trade by risk – decide a certain percentage to risk on each trade between entry and ops and allocate such that each trade risks that percentage and not more or less.

11. Watch former top and bottom levels for support and resistance. Tops when broken become support and bottoms when taken out become resistance. Long-term prior top and bottom levels are important resistance and support levels as well.

12. Volume tends to increase near tops and get dull near bottoms. Strong trends up should be accompanied by healthier volume than during declines and visa versa to a lesser extent.

13. Bull markets should show bull legs that last longer in time than downward moves and visa versa.

14. The greatest profits can always be made in runaway moves. Find the top runaway moves in stocks or commodities to trade.

15. Always trade only in direction of the main trend and let the trend be your friend.

16. Buy gap breakouts of bottom or consolidation patterns in a bullish trend and sell short gap breakdowns of tops or consolidation patterns in a bearish trend.

17. Never over-trade – focus on the 3-7 most important trends in force and vehicles at any time, or the most significant sectors.

18. Never let a significant profit turn to a loss – use trailing stops to move your protective stop to break-even and higher as a trade moves in your direction.

19. Trade only in the most active markets – avoid thin markets.

20. Don’t exit a profitable trade without good reason – follow up with a trailing stop or else exit on a clear topping pattern or bottoming pattern against a trade. Don’t exit because of impatience with a profitable trade.

21. Accumulate a Surplus – take half of your profits and put it into a conservative account that builds over time in case of emergency or panics.

22. Never average a loss. Only add to winning trades and only when the risk of the first trade can be reduced via a higher protective stop.

23. Seek to take profits much larger than your losses – look for trades with at least a 3/1 reward to risk ratio in which you have substantial confidence before trading.

24. Don’t try to bottom or top pick – never buy because something is low or sell because it is high, rather trade the trend and watch bottom and topping patterns.

25. Only pyramid or add to the strongest trades and strongest trends and do not add risk exposure as you add position size.

26. Reduce your trading after a series of losses – never increase.

27. Preserve your mental capital as well as your market capital – you can only succeed when you have not overspent your mental capital on trends that are not strong enough, or on losing trades.

28. Buy strength and sell weakness. Let your rule be to go with the main trend and focus on the strongest instruments within a bull trend or the weakest instruments within a bear trend.

29. Seek trades and trends with many aspects pointing in the direction of the trade.

30. Remember that economic forces rule major trends but psychological forces rule intermediate trends.

31. Be patient with winners and impatient with losing trades.

(Taken from “Truth of the Stock Tape”, sold by Lambert publishing)

posted by narenfmt on Vfmdirect