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18 Golden Rules of trading, must know by every investor and trader

Wednesday, July 1, 2009 | Labels: , , , | |


In recent days I come to Some old but good rules of Richard Rhodes. This famous trader gives us some important tips as being in market from last 17 years. Rhodes tell through this rules if you follow this, you will survive and make money in stock market.

Market is like child, no one can say when baby cry or make joy. Market is volatile as mood of child. You can only predict about various run of market. If you are equipped then only make money. No matter where market goes bear or bull, most important thing is what you get from market.

This simple rules must be read if your investing or trading in market. I don't want to touch this golden rules to simplify because it is very easily and simple way presented by Richard Rhodes.

Wise investor always make himself knowledgeable for small but important things. He knows very well that simple rules also save his hard earned money. If you are reading this means your investing this time for your future. Oblivious it pays you.

1. The first and most important rule is - in bull markets, one is supposed to be
long. This may sound obvious, but how many of us have sold the first rally
in every bull market, saying that the market has moved too far, too fast. I
have before, and I suspect I'll do it again at some point in the future. Thus,
we've not enjoyed the profits that should have accrued to us for our initial
bullish outlook, but have actually lost money while being short. In a bull
market, one can only be long or on the sidelines. Remember, not having a
position is a position.
2. Buy that which is showing strength - sell that which is showing weakness.
The public continues to buy when prices have fallen. The professional buys
because prices have rallied. This difference may not sound logical, but
buying strength works. The rule of survival is not to "buy low, sell high", but
to "buy higher and sell higher". Furthermore, when comparing various
stocks within a group, buy only the strongest and sell the weakest.
3. When putting on a trade, enter it as if it has the potential to be the biggest
trade of the year. Don't enter a trade until it has been well thought out, a
campaign has been devised for adding to the trade, and contingency plans
set for exiting the trade.
4. On minor corrections against the major trend, add to trades. In bull
markets, add to the trade on minor corrections back into support levels. In
bear markets, add on corrections into resistance. Use the 33-50%
corrections level of the previous movement or the proper moving average as
a first point in which to add.
5. Be patient. If a trade is missed, wait for a correction to occur before putting
the trade on.
6. Be patient. Once a trade is put on, allow it time to develop and give it time
to create the profits you expected.
7. Be patient. The old adage that "you never go broke taking a profit" is maybe
the most worthless piece of advice ever given. Taking small profits is the
surest way to ultimate loss I can think of, for small profits are never allowed
to develop into enormous profits. The real money in trading is made from
the one, two or three large trades that develop each year. You must develop
the ability to patiently stay with winning trades to allow them to develop into
that sort of trade.
8. Be patient. Once a trade is put on, give it time to work; give it time to
insulate itself from random noise; give it time for others to see the merit of
what you saw earlier than they.
9. Be impatient. As always, small loses and quick losses are the best losses. It
is not the loss of money that is important. Rather, it is the mental capital
that is used up when you sit with a losing trade that is important.
10. Never, ever under any condition, add to a losing trade, or "average" into a
position. If you are buying, then each new buy price must be higher than
the previous buy price. If you are selling, then each new selling price must
be lower. This rule is to be adhered to without question.
11. Do more of what is working for you, and less of what's not. Each day, look
at the various positions you are holding, and try to add to the trade that has
the most profit while subtracting from that trade that is either unprofitable
or is showing the smallest profit. This is the basis of the old adage, "let your
profits run."
12. Don't trade until the technical and the fundamentals both agree. This rule
makes pure technicians cringe. I don't care! I will not trade until I am sure
that the simple technical rules I follow, and my fundamental analysis, are
running in tandem. Then I can act with authority, and with certainty, and
patiently sit tight.
13. When sharp losses in equity are experienced, take time off. Close all trades
and stop trading for several days. The mind can play games with itself
following sharp, quick losses. The urge "to get the money back" is extreme,
and should not be given in to.
14. When trading well, trade somewhat larger. We all experience those
incredible periods of time when all of our trades are profitable. When that
happens, trade aggressively and trade larger. We must make our proverbial
"hay" when the sun does shine.
15. When adding to a trade, add only 1/4 to 1/2 as much as currently held. That
is, if you are holding 400 shares of a stock, at the next point at which to
add, add no more than 100 or 200 shares. That moves the average price of
your holdings less than half of the distance moved, thus allowing you to sit
through 50% corrections without touching your average price.
16. Think like a guerrilla warrior. We wish to fight on the side of the market that
is winning, not wasting our time and capital on futile efforts to gain fame by
buying the lows or selling the highs of some market movement. Our duty is
to earn profits by fighting alongside the winning forces. If neither side is

winning, then we don't need to fight at all.
17. Markets form their tops in violence; markets form their lows in quiet

18. The final 10% of the time of a bull run will usually encompass 50%
or more of the price movement. Thus, the first 50% of the price
will take 90% of the time and will require the most
backing and filling and will be far more difficult to trade than the last 50%.

I like this rule and feel important what do you think.

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