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The Top 10 Trading Rules Experts Recommend

Jul 18, 2008
With all the risk encountered on the stock market, it helps to have a set of guidelines to follow for making your overall trading decisions. While each expert has their own ideas of which rules are the most important to follow, here are some that usually come up among the top 10 trading rules.

Have a strategy and stick to it

Before you get started trading, do some critical research on a variety of different trading strategies and choose the one that best fits your financial goals and personal style. Then stick with that strategy. All of them can bring in profits, but not if you keep jumping from one to another.

Follow the trend

Don't try to buck the trend. For many traders this is easier said than done. Most people involved in stock trading are more independent minded than average and have a natural tendency to avoid doing what everyone else is doing. For the sake of your profits, try to rein that tendency in a little.

Know when to cut your losses

This is another often heard piece of trading advice that's hot so easy to follow. None of us like to admit we've made a mistake and simple hope keeps many traders holding onto a falling stock waiting for things to turn around. Before you enter a trade, decide your stop loss price so you'll know exactly when to sell.

Don't overtrade

Try to stick to 3 to 5 positions you know well and are satisfied with. Any more and you're likely to start losing control and making unsound decisions.

Manage your risk

Before you even start trading for the day, choose your objectives, entry points, and exit points to avoid any rash decisions. Never risk more than 5% of your account on one trade. Also make sure you always have stop-loss and take-profit orders in place.

Do your research

Before you buy stock in a company learn as much as you can about it and where it's headed. That means more than just looking up its stock symbol. Dig into information on how the company is run, their objectives, and what their customers think about them.

Be flexible

While sticking to a strategy is important, the stock market is highly dynamic place and it's bound to surprise you with sudden shifts from time to time. Accept this and be ready to change your decisions when needed.

Beware of your emotions

If you're tired, grumpy, or even overly optimistic, take the day off. Same goes if you're not feeling well. A mistake caused by emotions or plain tiredness could cost you thousands, which won't do anything for your mood or your health.

Question everything

Even the writers and editors at the top trading magazines and newsletters make mistakes. They may have a lot more time to analyze stocks than you, but no analysis system is perfect, especially when used by imperfect human beings. It's fine and, in fact, usually profitable to take cues from the experts, but you owe it to yourself to verify any information and tips you get before you invest.

Unfortunately, there's no one set of rules that will guarantee success on the stock market, but by using the top 10 trading rules set out here as guidelines, you're bound to improve your results.
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