7 important rules of investments/trading

7 important rules of investments/trading

The following is a list of things you want to avoid at all costs. Anyone
of them can literally destroy your financial dreams and goals!

·         1. Trading with money you can't afford to lose

One of the greatest obstacles to successful trading is using money that you
really cannot afford to lose. Examples of this would be money that is
supposed to be used to pay the mortgage, bills, or your child's college
tuition. This is sometimes referred to as "trading with scared money" and
there is a very good reason for that. Ultimately what happens is that when
someone knows in the back of their mind that they are risking the borrow
money; they trade out of fear and emotion versus logic and no emotion. If
you are in this situation, we highly recommend that you stop trading until
you earn enough to put into an account that you truly can afford to lose
without causing major financial setbacks.

·         The need to be "certain"

We all have the need to make sure that the trade we want to make is going to be a good one. Therefore, we look for signs that will give us a confirmation
to enter. This can come in several forms, for example… Tuning into any
Business Channel or the Newspapers to give us news that our script is on the
move or waiting for a couple of extra days to make sure that the script is
really flying and just not on a false breakout. Other traders will get
opinions from friends, family, or broker. Others will wait for ten technical
indicators to line up and give the "green light."

All of these are okay to a point, however the big mistake to avoid is taking
so much time that you let the trade take off without you. Interestingly,
what ends up happening as a result of waiting too long is that you actually
increase your risk. This is because as a script moves higher and higher
there are fewer buyers left in the market and it can come tumbling down
until more buyers step in. It is like a game of musical chairs; eventually
someone gets caught without a chair.

Traders who wait and wait and wait to make extra sure are usually the ones
buying the top tick just before the stocks sells off. They then beat
themselves up thinking they picked the wrong script.

The thing to keep in mind is that there can be no absolute certainty in any
given trade. All we ever can do is take a very educated risk along with a
leap of faith!

·         Words that will kill you! HOPE---WISH---PRAY

If you ever find yourself doing one or more of the above while in a trade
then you are in big trouble! As We have already said, the market does not
give a damn. All the hoping, wishing and praying in the world is not going
to turn a losing trade into a winning one. When you are wrong just use a
simple 4-letter word to correct the situation-SELL!

·         Not Acting on your plan

A big source of trouble arises when a trader starts to deviate from their
strategy. Maybe for a week they will trade according to one set of rules and
the next use something entirely different. You must never deviate from your
methodology once you start. As long as it is a good one statistically, there
is absolutely no reason to change it. The way to make money from it is to
trade it over and over again to exploit the edge it gives you.

·         Not knowing how to get out of a losing trade

It is amazing how many people we have talked to who don't have any clear
escape plan for getting out of a bad trade. Once again, they hope, pray wish
and rationalize their position. As we keep saying, the market does not care
what you think. It does what it does and when you are wrong, you are wrong! The easiest way to keep a bad trade from going really bad is to determine before you get in, where you will get out.

·         Having an ego

We have seen a number of individuals enter the trading game that was
extremely successful in other business ventures. Because of this, they had a
fairly big ego and thought they could not fail. Their egos became their
downfall because they could not except that they were wrong and refused to
bail out of bad trades.

Once again, whoever or wherever you came from does not concern the markets. All the charm, powers of persuasion, number of diplomas or business savvy will not budge the market when you are wrong.

·         Falling in love with a sector or script

Numbers of people are always involved with a particular sector or a script.
Moreover, they are of the view that this sector or script always proves Lucky for them. In addition, they love trading in that script without managing any risk. They are so much confidant that their every trade in that particular script will always result in to a winning or successful trade.

To avoid the situation after but…, never fall in love with a particular
sector or stock, It can cost you dearly!