Below are some of the Key points to be followed while trading Stocks for Short Term Investment
1 – Learn the rules of trading:
Before you start risking your hard-earned cash, use a demo account for at least 6 months to test your trading system.
2 – Never spend more than 2.5% of your total fund value on one stock or Trade
If you risk everything on one stock and then you are wrong, it’s over, taking smaller risks will ensure you don’t lose everything and can fight another day, this is very good risk management.
3 – Know when you are getting out before you get in:
Be clear on what the exit strategies are before trading, this will avoid you holding losing stocks for too long.
4 – Cut your losses short and let your profits run:
Losses are unavoidable, accept them and keep them small, this the biggest mistake many traders make.
5 – Don’t add to a losing trade:
Losing trades should be sold if the sell trigger has been generated, if not then hold, but do not add to losing trades, adding to losing trades will compound the loss, don’t be afraid to take a loss, this is a natural part of trading as we can’t be right all the time.
6 – Ensure you can perform your own due diligence:
Don’t just buy or sell because of a friend’s recommendation, ensure you have the training to perform your own due diligence.
7 – Don’t trade on market sentiment:
Trading on sentiment is dangerous, as we know sentiment causes the markets to rise and fall, we can react to the rise and fall caused by the sentiment, but not the sentiment itself, if our buy and sell signals are generated then we act.
8 – Keep your emotions out of trading:
Trading on emotion will cause the buying and selling of stock without good reason, emotions have no part in trading, we only trade based on our rules.
9 – Be very disciplined in your investing approach:
Adhere to your trading rules ( don’t keep changing the rules due to changing market conditions ).
10 – Be patient at all times:
Be very patient at all times, there is no need to rush, there is no need to trade everyday, if nothing meets your trading rules then don’t trade, only enter the market when the signals and conditions meet the rules.
11 – Avoid listening and especially reacting to the noise:
News, commentary and opinions are everywhere 24/7, much of this is noise and should avoided, if a trading system is in place and works then we don’t need the noise.