Trading Rule Part 2 - Set the Difference Between Novice and Professional Trader

From the previous article, I mentioned 4 trading rules, no 1 – Always do market research, no 2 – Limit your trading size, no 3 – Give your trade a reason, no 4 – Set exit level.

Please refer to here to find out more.  

In part 2, I would like to share certain rules that I follow after I have entered the trade.

Rule 5 - Never average out a losing position

If you are having a losing position, try to minimize the loss by cutting the number of position, never add on to it so that you average out each options price. Many people think that they can salvage the trade by adding on to average out each unit price, this is self deceiving, and you might end up doubling your loss easily. Do not hold on to the losing position, you can either cut the position size or accept the failure, move on to another trade quickly.

Rule 6 - Always update yourself with the Economy Calendar

Financial market is always influenced by the economic event, for example, jobless claim, FED meeting, oil inventory, housing start, and etc. These are the regular report that will affect the overall financial market, therefore affects your decision of when to enter and exit the trade as well.

Rule 7 – Always updates yourself with the Stock News

After checking the broad economy view, now zoom into your stock news. You need to understand how the industry and the sector are performing at this moment. After that find out the latest news of the particular stock you trade, in order to understand if it is the best or worst performer in this sector. Keep yourself update with the company news, certain decision from the CEO or board of director definitely will affect the stock performance. 

Rule 8 – Always do analysis after market close

In previous article, I mentioned that we always need to do market research before market open. Now I would like to stress the importance of your stock analysis after market close. The market determine its price only when it close, this is the price that every buyer and seller agree after the war of tug. I usually like to use candlestick chart pattern to confirm if tomorrow I would enter the trade or exit the trade, because you only see the chart pattern after the market close. For example, how can you confirm that today is going to form a bullish engulfing pattern? You know it only when the stock rise up and exceed the open price of yesterday session until the end of the day. Therefore, you can have a better gauge after market close.

For part 3, please find out from TraderWork.com. Always trade with your passion! 

Trading Rule Part 2 - Set the Difference Between Novice and Professional Trader

Trading Rule Part 1- set the difference between novice and professional trader by Paul Liew

If you ask me what is the major difference between a novice and a professional trader, the difference is whether he or she set the trading rules and follow the rules. There are thousands set of trading rules that you can create or follow, what I recommend is that you do not need to create a certain of trading rules, you can just follow them which came from the famous investor and traders.

One of the famous investor that I admire and respect a lot is Warren Buffet. In his world, rules are more important than anything. His famous quote is as follow: Rule 1: never lose money Rule 2: never forget rule no 1 Funny enough? Many people understand the importance of setting rules but never learn to follow the rules.

For part 1, I would like to share the rules that I follow before I enter the market.

Rule 1 - Always do market research before market open: 
Open your CNBC or any finance website to get the latest update, understand what's happening in the market right now. Either is it oil price drop, or some where having a war, focus on news that may be making any impact to the US market and the stock you are trading. After learning the news, try to figure out the market sentiment, for example, is oil inventory going lower a good thing to the market? Certainly not! With the latest news in hand, it will help you to make a better decision when entering the trade.

Rule 2 - Limit your trading size: 
Do not over trade, always make sure you have enough money to play for the next game. Thumb of rule is always using 1/20 of your total money for each trade. If you have $5000, each trade is $250, in that case you can have 20 games to play.

Rule 3 - Give your trade a reason: 
Before entering the position, make a note and jot down what makes you buy or sell certain options, as well as what strategy you use, and why? Put all this down in your trading journal, so that you can revise it back. If you end up a loss, make sure you understand where the problem is. If you earn a profit, remember what you did right.

Rule 4 - Set exit level: 
When you see a potential trade, holds your trigger, make sure you set your exit level before clicking the button. Many people are good traders, they know when to enter the trade, but do not know when to get out. You need to set two exits, one for your stop loss, one for your profit limit. Especially for stop loss, set at the level that you are comfortable with your risk level, from the technical point of view, you can set your stop loss at certain support level, when the stock break through the next support level, cut the loss and run.

For part 2, please find out from Options Trading Academy. Always trade with your passion!

About the Author

I am an options trader and internet marketer, I have experienced the up and down through this valuable journey. Now I am here to share my humble experience so that you can be benefited from it. You can find out more free resources from http://optionstradingacademy.blogspot.com/ andhttp://internetmarketerjournal.blogspot.com/.

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Trading Rule Part 1- set the difference between novice and professional trader by Paul Liew

8 Tried and True Commodity Stock Trading Application Rules That Will Explode Your Mind

Some commodity Stock Trading Application rules are made to be broken, but when you`re trading, there are some rules are meant to be followed. Here some of the Stock Trading Application rules that I consider the most important principles of trading.

I suggest that you make a copy of them and place them in your trading diary or tape them to your desk, so that you`ll always remember to follow them.

Commodity Stock Trading Application No. 1 ~ Cut Your Losses

Never let your losses get out of hand. It is one of the most important things that you can do to ensure you are successful. Losses can devastate you emotionally and will diminish your trading capital, violating your primary aim in trading – to preserve your capital. If you could get successful traders to credit their success to one thing, many would select this rule.

Commodity Stock Trading Application No. 2 ~ Let Your Profits Run

Hand in hand with the first rule is the second ~ let your profits run. Your trading plan will probably produce profitable trades less than half of the time. Therefore, you need to make sure that when you do achieve a profit, you get the most out of the move in the stock. Some up trends take time to develop; and you must wait until you see the high in the stock achieved and then the reverse in direction before you consider closing the position. Until you see the reverse, you won`t know if the stock is going to go any higher. Remember, your few profits must outweigh many losses.

Commodity Stock Trading Application No. 3 ~ Follow the Trend

In trading, trends are the only friends you have. Always trade with the trend! Never attempt to identify the bottom in the stock or time your entry using that approach. If you do, you can be run over as the stock continues on its way down. There is often great force and momentum at work when a stock is trending in either direction, particularly when the trend is down. Don`t try to fight it. Why buy something that is heading in the wrong direction on the hope that it will turn around and head back up past your entry level?

Commodity Stock Trading Application No. 4 ~ Don`t Overtrade

Don`t trade for the sake of trading. Never force the action. If you are not comfortable with any of your potential trades then don`t open a position. It is a mature decision to do this when conditions aren`t quite right, and you won`t be trading for the wrong reasons.

Commodity Stock Trading Application No. 5 ~ Never Act on a Tip

Who hasn`t reacted to a tip they heard from somebody about a stock that is apparently going to the moon and never coming back? Never act on a tip; tips are rarely good. The worst part of tips is that you will probably stick with the trade even when the security starts to head against you. You will be more inclined to break the commodity Stock Trading Application rules and not cut your loss because of the ‘reliable` information you have heard about the stock`s future. Instead of trading on tips, have confidence in your own plan.

Commodity Stock Trading Application No. 6 ~ Always Trade Liquid Stocks

It is a horrible feeling of helplessness to be stuck with a stock that you need to exit from because there aren`t enough buyers in the market. Liquidity is the ability to trade in a security without adversely affecting its market price. Always demand liquidity in your securities before you consider trading them, and you`ll never be stuck with a stock.

Commodity Stock Trading Application No. 7 ~ Keep Positions Small

When trading, you need to understand and manage risk to achieve long term success. If you want to completely avoid risk, then don`t commit any money to any financial market. If you are prepared to take some risk, then managing and controlling that risk will be crucial. One of the best ways to do this is to ensure you have, and use, a good position sizing model. This model will ensure that you don`t commit too much of your trading capital to a single position, allowing you to spread your risk across several positions.

Commodity Stock Trading Application No. 8 ~ Don`t Buy Something Because it Looks Cheap

If a stock is cheap, there is probably a very good reason for it. Only consider stocks that are trending up. There is no such thing as a stock that might start to trend up any day. Even if a stock looks cheap, who is to say that it will not get cheaper? It may never increase in price again.

With these commodity Stock Trading Application rules, a solid trading system, and good money management, you can become a successful trader. Remember these commodity Stock Trading Application rules and use them. Particularly when you don`t want too.

About the Author
David Jenyns is recognized as the leading expert when it comes to MetaStock and designing profitable trading systems.
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8 Tried and True Commodity Stock Trading Application Rules That Will Explode Your Mind