8 Golden Rules for Successful Stock Trading

Are you looking for ways to get the most out of your money? Then consider stock trading as it provides various opportunities for your money to grow.

These days, stock trading is getting very popular as it offers trading or investing in the market as per your wish and need. Especially with online trading, you can trade at ease and your convenience through online trading platforms all by yourself - as it doesn’t require meeting the broker to place your trades. Some people are just interested in learning how to trade so that they can make the most of their investments. In either way, successful trading is not easy; it is a serious undertaking, and you have to put a fair amount of time and thought into it.

According to a legendary trader, Jesse Livermore, “In trading there is no bull side and bear side. There is only the right side”. Generally, traders are not concerned about the long term and moreover, they are not really bothered about getting the market view right. Instead, their concern is whether they have properly understood the underlying trend of the market, as it is the key to successful trading. Along with the latest trends, to become a successful trader, you need to know the golden rules of trading, else you’ll definitely be on the losing side of the game.

Check out the 8 golden rules to follow:

• Follow a Trading Plan: Traders are advised to always follow a trading plan – a written set of rules that specifies a trader's entry, exit and money management criteria for every purchase. The key here is to stick to the plan - though it’s hard at times to follow a framework without any fail - it will allow you to evaluate what you’ve been doing, right or wrong. Trading outside of the trading plan - even if it turns out to be successful - is considered a poor strategy. Especially, with today's technology, we could test a trading idea - known as back testing - and optimize it easily before risking real money. This practice allows the trader to apply their trading idea using historical data and determine if it is viable. Once a plan has been developed with the good results from back testing, the plan can be used in real trading. However, sometimes your trading plan won't work. In such situations, relieve from that plan and start over. Based on experience and past results, it is ideal to update your trading plan weekly or monthly. Eliminate bad strategies and embrace new ideas. Whenever you are looking for a way to get out, go back, read the plan and follow it to the dot.

• Master one strategy at a time: Even if you have lots of trading plans as a backup, focus on a single strategy. Rather than ending up being an average at several strategies, mastering a single strategy is a wise decision. Understand all its ins and outs before moving on to another.

• Don’t Treat Trading as a Hobby: As we have mentioned above, trading is a serious business and you can’t treat it as a hobby or a job. Instead, approach trading as a full or part-time business. Treating trading as a hobby often means no real commitment to learning is made, which might result in losses and similarly, considering trading as a job can be frustrating, as there is no regular paycheck. Therefore, if you want to succeed as a trader, the very first step is to treat your trading as a business. Though not similar to regular businesses, trading as a business also involves expenses, losses, taxes, ambiguity, stress and risk. Moreover, as a trader, you are considered to be a small business owner and for your business to become a success, do your research and strategize to maximize your business’ potential. But always remember that there are real costs associated with it.

• Continue Learning: As it is the period of online trading, trends change a lot and you can’t stick to a single strategy if you want to become a successful trader. Educate yourself with the newest trading trends and adapt to these changes.

• Leverage Technology: Leverage technology and keep current with new products in trading as it can be fun and rewarding. It’s very important to take advantage of technology because, these days, nearly every investor makes trades using online platforms. The use of the internet and technology doesn’t stop there, with charting platforms – that give traders an infinite variety of ways to view and analyze the markets - to Smartphone apps - that allow you to monitor trades wherever you are - technology that we take for granted can greatly increase trading performance.

• Preserve Your Trading Capital: The most important step that you must take when you deal with your trading capital is to preserve the capital, even when you can afford to lose it. Don’t make unnecessary moves that risk your capital. For instance, do not trade more than 10% of your portfolio in a single trade, that is, if your portfolio is $10,000, every trade should limit to $1000, so that there’s no chance of you being completely wiped out.  “The most important rule of trading is to play great defense, not great offense.” – Paul Tudor Jones.

• Don’t let emotions rule you: Don’t ever take trading decisions because of emotions, because the two biggest emotions in trading are greed and fear. Both emotions will lure you to make wrong trading decisions, but you have to stay practical and maintain realistic expectations in trading. According to Adam Grimes – an experienced trader, “Mental capital is just as important as financial capital.” Avoid letting your emotions sway your decision-making ability and protect both mental and financial health.

• Do not overtrade: Having too many open positions or using a disproportionate amount of money on a single trade, also known as overtrading or churning, should be avoided. Even though there are laws or regulations against overtrading for individual traders, by overtrading you may damage your portfolio. Ideally, it is recommended that there should be no more than five positions at a time. If you have any more, you could lose control and make bad decisions when the market changes. Therefore, prevent overtrading by amending your trading plan at any time and make it more restrictive by adding strict entry and exit criteria.

You should also know when to quit or stop trading. Usually, there are two reasons why you should quit and they are:

• You have an ineffective trading plan
• You are an ineffective trader

In the above instances, you should consider quitting trading because with an ineffective trading plan and as an ineffective trader – the one who makes a trading plan but is unable to follow it - you may experience greater losses. If you are having problems with your trading plan, consider reevaluating the plan, make necessary changes and start over with a new trading plan. An ineffective trader, who is not in peak condition for trading, should consider taking a break. Once you feel like you can deal with any difficulties and challenges, you can return to business.

Though business is hard, at the end of the day, if you treat trading like a business, you’re on the right track. There are more rules in trading that you can adopt to become a successful trader. Be an informed trader, always do your own research and analysis before venturing out in a trade. Take the time to study and learn before starting to trade, make sure you have a strong foundation of understanding the markets and a solid trading system. You could also take tips from an experienced friend or trading broker. However, the best things in life take time and training, and the time spent learning to trade well is worth investing in.

If you are struggling with the basics of investments and trading or if you want a successful trading career, utilize the advanced direct access trading platforms provided by TradeZero. Get in touch with us at 1 954-944-3885 for more information, or send an email to [email protected].