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Trading Lessons

Trading Rules

InvestorEducation / Learn to Trade Apr 09, 2008 - 01:41 AM GMT

By: Christopher_Quigley

InvestorEducation

Rules Of The Trade 

Rule 1. To trade successfully you must develop your own system and approach. To do this you must work the market out for yourself. The best way to start this process is to first learn how others before you mastered this task successfully. Thus become educated, informed and aware and stay that way.  


Rule 2. Never purchase equities at market price; always use a price limit.  

Rule 3. Upon entering a position the maximum loss entertained should be approximately 3%. Thus be prepared to cut your losses early should the price action go against you.    

Rule 4. As the price of the stock rises (or falls if you are short) raise your stop accordingly, thus allow your winners to run.    

Rule 5. Prior to investing in any equity pay particular attention to the risk reward ratio. The essence of the market is risk and for you to be profitable in the long run the risk must make sense in terms of probable and potential returns.    

Rule 6. Your potential portfolio of stocks chosen by fundamental analysis should comprise no more than 10/20 stocks. Know everything there is to know about your listing including price history, financials, business model, management and earnings dates. When you become experienced you can modify the degree of diversification in favour of focus.    

Rule 7. When starting out do not invest more than 10% of your investment fund until you have proven your ability to make good investment decisions in real time in the real market. Ideally you should paper-trade for 3-6 months before using real money.    

Rule 8. Keep a diary for note taking, analysis and review.    

Rule 9. The ideal time to trade is the last 1-2 hours of trading.    

Rule10. Be consistent in your approach. Discipline will help you to eliminate emotion from the process and allow experience, logic and technique to prevail.    

Rule 11. Always know the trend of the market and your equities. The trend is definitely your friend and be aware that in a bull market, in the main, significant averages will be price supports whereas in a bear market the averages will be price resistances.    

Rule 12. Be patient and learn to realise that if no investment prospect presents itself very often the best place to be is in cash since the most important trading rule of all is: PROTECT YOUR CAPITAL.

By Christopher M. Quigley
http://www.wealthbuilder.ie

Mr. Quigley is 46 years of age and holds a Batchelor Degree in Management from Trinity College/College of Commerce, Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the Stock Market in San Francisco, California where he lived for 6 years. Now based in Dublin, Mr. Quigley actively trades utilising the principles set out in the modules above. This Wealthbuilder course has been developed over the last 9 years as a result of research, study, experience and successful application.

Christopher M. Quigley Archive

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6 Critical Money Making Rules