Trader guidelines for Success in Stock Market

Keys to Short term trading

Part I

In life, you have to learn to walk before you can run. In the stock market, you have to learn to lose before you can truly win. Sure, your first trade may be a winner, but to consistently make money in the stock market you have to learn how to lose. More to the point, you have to learn how to cut your losses. I do not mean to say that if you will make a loss couple of times, profits will start coming in instantly. Trading, after all, in the stock market is nothing but maximizing your profits and cutting (minimizing) your losses.

The majority of people who dabble in the stock market see themselves as smart, educated and sharp. Self-belief is great. The most successful people in the world have a strong belief in themselves. Irony is some of the most unsuccessful people in the world also have a strong belief in themselves. So what’s the difference between the successful and the unsuccessful traders???

One major difference between successful traders and unsuccessful traders is the ability to admit when one is wrong. It really takes a character to do that. Not admitting to others but to your own self. A successful trader will cut their losses before them getting out of hand. An unsuccessful trader will let their losses grow in the false belief or hope that things will pick up.

It would be nice if every stock selected was a winner, but when you get the odd loser you better make sure you cut that baby lose before you lose some big money.

The Stop-Loss before you even consider entering a trade, you should determine your stop-loss point. Your stop-loss point should be set at a price that you're willing to sell your stock at should things turn bad. The price you pick will vary depending on your financial position and the particular stock being considered. You may want to set a stop-loss exactly at a point under your purchase price, or you may want to set it just below some clear resistance in a chart (if the stock falls below that resistance level, you can be fairly sure, things will continue to be southwards for a while). The most important thing is to test your system, your own trading system. If you set your stop-loss too close, you'll never be in the game when the stock turns good. If you set your stop-loss too far away, you'll end up losing too much money.

Remember, the main aim is to make a profit across your entire portfolio. Imagine you owned Rs. 100000 worth of 5 different stocks. You set a stop loss at 10% current market value; so if the value of a single stock drops to Rs 90000 you'll sell at that price. Even if you are wrong with 3 of the 5 picks (an added loss of Rs.30000), you only need to make 15% on the remaining 2 stocks to break even. What if those remaining 2 stocks made 50% (which is very realistic if you pick your entry right)? You'd actually profit Rs. 70000 across your entire portfolio despite the fact 60% of what you picked were duds!

Starting with 5 positions worth Rs. 100000 each: Rs.500000

3 losing stocks lose 10% each: -Rs. 30000

2 winning stocks make 50% each: +Rs. 100000

Total = Rs. 570000

Modern trading systems have completely automated stop-loss systems. This makes it so easy to set stop-losses that you have no excuses for losing big in a single trade anymore! In fact, you're out of your mind if you don't take advantage of stop-losses some traders might comment. You'll learn how to plan and time your entry and exit points on this site over the next few months.

Until then, good luck and keep on learning.