Stock Trading Rules

It is very important to have a firm set of stock trading rules. Most people who trade the stock market end up losing money. Not having a rigid set of rules is perhaps the most common cause for this.

Having a solid stock trading strategy

Have a solid stock trading strategy. Decide which time frame you want to trade and stick to it. You can day trade, swing trade or hold stocks for the long term.

Within your stock trading strategy needs to be some rules on risk management. You need to decide firmly at which point you are going to accept a trade is a loss and conversely where to take profit.

Unfortunately at some point in trading you will incur a run of losing trades. When this happens it is especially important to stick to your strategy.

Never risk more in attempt to recoup losses quicker. This runs the risk of being disastrous.

Always look at the big picture, a few losses will have little effect on the big picture. However, very large losses may do.

Accept your trading strategy is not 100% effective, your stock trades will not always be winners.

Mentally prepare yourself

Try to prepare yourself the best you can for fluctuations. Remember what the small print tells you “Investment value can go down as well as up”.

It can take a long time for your emotions to be fully under control during price fluctuations, both in your favor and against you.

Trading a demo account for a period of time prior to trading with real money can massively help you to overcome this hurdle.

I fully understand you may be eager to get trading, but this brings me to one of my favorite sayings “Failing to prepare is preparing to fail.”

I can remember when I personally started trading, I thought I didn’t need to practice before trading real money, let’s just say, this was my biggest trading mistake to date. The market soon humbled me.

Make sure you are not over exposing yourself

Only ever trade stocks with money you can comfortably afford to lose. Obviously you don’t plan on losing your money, but be fully prepared for it, just in case. Remember, nearly all new stock traders lose money initially.

Also, never put 100% of your investment portfolio into stocks. It’s always a good idea to diversify as this can spread the risk. If a major stock market crash was to occur like in 1929, 1987 or more recently in 2008, there is a good chance that the majority of your stock portfolio would be a long way down.

Know what you are working with

Spend some time getting to know your trading platform before you start trading real money.

Be Realistic

This is one of the best stock trading rules. Completely stay away from the whole “Get Rich Quick” mindset. Whilst some traders have earned a lot of money in a very short space of time, they do tend to be few and far between. For every big winner there are probably thousands of losers.

Perhaps think about Warren Buffet, he is the most successful investor “simply” by averaging around 23% per year on his money.