FOCUS ON CAPITAL PRESERVATION. The most important step that
you must take when you deal with your trading capital. You main
goal is to preserve the capital. Do not trade more than 10% of your
deposit in a single trade. For example, if your total deposit is
$10,000, every trade should limit to $1000. If you don't do this,
you'll be out of the market very soon.
4. KNOW WHEN
TO CUT LOSS. If a trade goes against you, sell it and let
go. Do not hold on to a bad trade hoping that the price will go
up. Most likely, you end up losing more money. Before you enter
a trade, decide your stop loss price, a price where you must sell
when the trade turns sour. It depends on your risk profile as of
how much you should set for the stop loss.
5. TAKE PROFIT
WHEN THE TRADE IS GOOD. Before entering a trade, decide how
much profit you are willing to take. When a trade turns out to be
good, take the profit. You can take profit all at one go, or take
profit in stages. When you've recovered your trading cost, you have
nothing to lose. Sit tight and watch the profit run.
6. BE EMOTIONLESS.
Two biggest emotions in trading: greed and fear. Do not let greed
and fear influence your trade. Trading is a mechanical process and
it's not for the emotional ones. As Dr. Alexander Elder said in
his book Trading For A Living, if you sit in front of a successful
trader and observe how he trades, you might not be able to tell
whether he is making or losing money. That's how emotionally stable
a successful trader is.
7. DO NOT TRADE
BASED ON A TIP FROM A FRIEND OR BROKER. Trade only when you
have done your own research and analysis. Be an informed trader.
8. KEEP A TRADING
JOURNAL. When you buy a currency or stock, write down the
reasons why you buy, and your feelings at that time. You do the
same when you sell. Analyze and write down the mistakes you've made,
as well as things that you've done right. By referring to your trading
journal, you learn from your past mistakes. Improve on your mistakes,
keep learning and keep improving.
9. WHEN IN
DOUBT, STAY OUT. When you have doubt and not sure where the
market or stock is going, stay on the sideline. Sometimes, doing
nothing is the best thing to do.
10. DO NOT
OVERTRADE. Ideally you should have 3-5 positions at a time.
No more than that. If you have too many positions, you tend to be
out of control and make emotional decisions when there is a change
in market. Do not trade for the sake of trading.