The gist of trading was best expressed by the famous trader Jesse Livermore. According to Livermore, “There is no bullish or bearish side to trading. There is only one right side. Traders are unconcerned about the long term and are not particularly concerned with obtaining the correct market view.
The problem is whether they have adequately analyzed the market’s fundamental trend. This is the secret to trading. Trading is obviously a complex game; else, there could have been a lot of successful traders in the world. So, what is it that transforms a good trader into a successful one?
10 rules for being a successful market trader.
- While we are generally referring to the equity market, these rules may be applied to any type of trade, including equities, futures, options, commodities, and even currencies.
- Successful traders start with capital protection in mind. What does this mean? You must specify how much capital you are willing to lose.
- This comprises the amount you are willing to lose in a trade, the amount you are willing to lose in a day, and the amount of capital erosion you can tolerate in total.
- When you engage in any uncertain activity, you must have insurance. A stop loss serves as trading insurance. Your stop loss might be set depending on technical levels, events, or budget.
- You set the stop loss based on a good risk trade-off. Earning Rs.3 for Rs.1 of risk represents a 3:1 trade-off. But 1:1 is a poor trade-off. More significantly, you must treat the stop loss as a discipline.
- When trading, don’t think and act like Warren Buffett, who has a ten-year perspective. As a trader, you are not in the buying and holding game.
- The more you capitalize on every opportunity to take profits off the table, the faster your money churns and the more funds you have ready to buy when corrections occur. That is how you improve ROI The market is correct, even if you disagree with it.
- The rule of effective trading is to always be on the side of momentum, because trend is your friend. In short, do not attempt to short a rampaging bull market or catch a falling knife.
- The market is continually sending you signals about the underlying trend. Learn to read the message.
When you lose money, learn from it, but don’t ignore the losses. - Do not look back and regret your trades. Also, when traders record profits and the stock rises, they tend to reflect on notional losses.
