FROM AN EXPERIENCE
39 RULES OF TRADING
RULE 1 – Keep losses small. I am more concerned about
protecting my capital and ensuring any losses are small, than I am about making
money. I’m going to have losses, but I control them and let the winners take
care of themselves. The hardest job of any trader is to get out of a losing
trade, believe it.
RULE 2 - Do not forget Rule 1.
RULE 3 - Learn the
basics; fundamentals, charts and indicators etc.
RULE 4 - Position size every bet in relation to your
bank.
RULE 5 - Always use stops, not as a trading tool, but as
a disaster avoidance technique.
RULE 6 - Give your trade room to breathe, don’t place
stops too close, most beginners lose because of this. Remember, the wider the
stop the smaller the trade size. This is also dependent on the timeframe you
are in, simple tip if you are trading on the 5 min. chart. Check the 10 min one
as well. Stops should be placed visually in my opinion.
RULE 7 - Don’t be greedy, appreciate small and consistent
gains. Once you’re in a profitable position, consider moving your stops –
especially to break even – and then you are using the broker’s money. If your
software has the facility, then trailing stops could the answer.
RULE 8 - Accept that the markets are totally random and
unpredictable and practice makes perfect – give yourself time before trading
‘live’.
RULE 9 - Control REVENGE, after a loser take a break,
always. Never strike right back, never, and never double up to recover your
losses.
RULE 10 - Never HOPE that you will win, trade only when
you see a good trading opportunity, and remember live trading is different
mentally from demo trading.
RULE 11 - Keep accurate records of each and every trade,
winners and losers, even on a demo account, you must learn the correct habits.
RULE 12 - Eliminate fear, fear of failure and fear of
trading. If you suffer from fear then trading is not for you.
RULE 13 - You do not have to trade, if there are no good
trading opportunities then do not trade, there is always tomorrow. You can
always spend the time practicing new techniques on a demo account.
RULE 14 - Take full responsibility 100% for your own
trading – only you can win at trading, do not rely on any external crutch to
blame.
RULE 15 - All markets are bearish, they will eventually
reverse, prepare and profit from them.
RULE 16 - If you lose, bet smaller. If you win, bet
bigger.
RULE 17 - Only bet with money you can afford to lose;
this eliminates fear.
RULE 18 - Don’t buy or take tips. Don’t buy, listen to,
or be influenced by outside sources. You are not a trader unless you learn to
do it yourself; it’s so easy to blame others when things go wrong!
RULE 19 -
Don’t trade the news. As a beginner, if you try to prejudge the market’s
reaction to the news, you will lose; don’t trade for 15 minutes either side of
it. See how the markets react to the news and then trade.
RULE 20 - Have faith in your trades. Once you place a
trade with stops, switch the computer off, they all have an “off” button, take
the dog for a walk. Do not screen watch, it will scramble your brains.
RULE 21 - Learn and use effective money management; money
management is the front door key to profitable trading.
RULE 22 - Always trade with the trend.
RULE 23 - Analyse your trading results, daily, weekly,
monthly and annually.
RULE 24 - Be disciplined, stick to your Trading Plan,
Targets, Position Sizing, Money Management, only YOU can enforce discipline on
yourself – you had better learn to do it.
RULE 25 - Use multiple timeframes; keep the bigger
picture in your head.
RULE 26 - Add to your winners. If you are on a winning
trend, lock in some profits by moving your stop and increase your position
size.
RULE 27 - Do not overtrade, it is the main reason that
men go bald!
RULE 28 - Learn to
get out of a losing trade. It’s the hardest thing to master but, if you don’t,
you will quickly join the ranks of the losers.
RULE 29 - Have a trading plan. It’s important, a must,
essential, life saving, lifeline; you cannot win without one. Do not be fooled
into thinking you can trade without one.
RULE 30 - Have an experienced mentor who you can turn to
when things go wrong, or find yourself an experienced trading buddy. Do not
expect to get a mentor for free.
RULE 31 - Do not – under any circumstances – let trading
dominate your life. Take regular time out for family and friends, go and play
football in the park or on the beach; it’s the real reason why you are trading.
Think about it!
RULE 32 - Don’t blame yourself when things go wrong.
Trades will go wrong – learn to accept them. Trading is a game of possibilities
and probabilities – forget the last one – get the correct setup for the next
one and have faith in your interpretation.
RULE 33 - Learn your own weaknesses, the best critic of
yourself is you, concentrate in rectifying them. But first, you have to admit
to them; and you will know.
RULE 34 - Aim for consistency. One of the keys of
successful trading is to repeat good habits time and time again, boring but
profitable.
RULE 35 - Take trading seriously. It’s not something that
you can say ‘you’ll give it a try’ or ‘have a go’ at. It is a proper business,
treat it as such, or it’ll be a case of goodbye loser!
RULE 36 - Understand the different styles of trading and
practice each one for a while. Once you are happy with a style that suits you,
practice it until you perfect it, it may be day trading, swing trading,
scalping or longer term trading. They are all there for you, but ultimately you
must decide.
RULE 37 - Don’t listen to hype, this industry is full of
the biggest and best conmen in the business, if it sounds too good to be true,
then stay clear and do not part with any money on dubious trading systems or
advice. I’ve seen trading systems for $50,000 and more – quite simply they do
not work. If they did, we would all have them. You can check out many conmen
and crooked brokers at Forexpeace army on the internet.
RULE 38 - Keep accurate and honest records, I know I’ve
said that before but I want you to do it. Good traders are good record keepers,
poor traders are the opposite. And finally, enjoy trading! It is a life changer
for those that can trade within these rules. If you want to add rules of your
own to this list – feel free. The last rule of trading is
RULE 39 - Don’t forget rule number one.
(to be contd)
FUNDAMENTAL
This Week’s Market Round Up: "Stellar rally"
Sensex closes at 17,430, up 3.0%; Nifty closes at 5,278, up
3.0%.
The highlight of the week, has been Mr. Manmohan Singh
taking charge of the finance portfolio and the ensuing talks of aggressively
pushing through reforms.
Meanwhile as crude oil prices have come off, OMCs cut
petrol prices by Rs.3/litre.
The Indian Meteorological Department (IMD) in its second
stage forecast has retained its normal outlook for monsoon.
Rupee rallied against the US dollar, ending at 55.6/dollar,
versus 57.2/dollar last week.
MARKET OUTLOOK
"Expect short term rally to continue"
At the current level of 17,300, the Sensex trades at a PE
of 15.7x FY12 earnings and 13.6x FY13E earnings estimate.
At 13.6x, we trade below average valuations of 15.4x 1
year forward earnings.
Recent events like Greek elections going in market’s
favor having taken some risk off the table.
Further, crude oil prices have come off significantly by
over 25% to $90/barrel.
With risks off the table, and crude coming off
significantly we expect short term rally to continue.
SECTORAL OUTLOOK
"Stay with companies robust
business models"
RBI in its latest policy cut interest rates by 50 bps to
provide a fillip to deteriorating growth environment.
We expect pick-up in corporate capex and credit growth
buoyed by further monetary easing.
We would advice clients to play interest rate sensitives
like Banks and Capital Goods (Yes Bank, City Union Bank and Larsen and Toubro) to
capitalize on falling rates theme.
At the same time consumption and agri stories (GSK
Consumer, Bajaj Auto, Coromondal Fertiliser) would continue to do well.
TECHNICAL
Round-up: "Bulls took the lead"
Nifty opened on a flat note and throughout the week was
trading in the broad range of 5200-5100. However on Friday huge buying was
witnessed and Nifty broke the mentioned resistance of 5200 and further made a
high of 5286.Finally Nifty closed at 5278 with a gain of 2.38% on w-o-w basis. Cements,
Pharma, Realty, Cap Good and Banking stocks outperformed the broader markets on
w-o-w basis.
WHAT TO THINK LIKELY TODAY..?
LEVELS OF NIFTY FUTURES (JULY 02)
OVERALL RESISTANCES NOW @ 5295-5342-5364
OVERALL SUPPORTS NOW @ 5245 – 5180 – 5100
Day’s Resistance @ 5295-5343
Day’s
Supports @ 5275-53-43
If NF trades above 5300 for 5 minutes, see an
intraday hike upto 5323-42
Suppose if trades below 5299 for 5 minutes see
a slide upto 5276 & 5254
FIIs PULLS OUT Rs1,957 cr FROM EQUITIES IN APR-JUNE
Amid concerns over
economic growth and depreciating rupee, overseas investors pulled out Rs 1,957
crore from equities in April-June this year in contrast to a hefty Rs 44,000
crore investment in stocks in the previous quarter.
According to the
data available with market regulator Sebi, foreign institutional investors (FIIs)
have withdrawn a total of Rs 1,957 crore in April-June quarter of current
fiscal. This was against record net inflows of Rs 43,951 crore in the January-March
quarter.
In April-June period
of 2011, FIIs investment in the equity market stood at Rs 5,171 crore.
Market experts
attributed the outflow to a slew of reasons including depreciating rupee, slowing
economic growth, high fiscal and current account deficit.
The country’s GDP
growth had dropped to 9-year low of 6.5% in 2011-12. The growth in the January-March
quarter was only 5.3%. The Index of Industrial Production) data showed just 0.1%
growth in April.
Of the total
withdrawal of Rs 1,957 crore in April-June, FIIs took out Rs 501 crore in June,
Rs 347 crore in May and 1,109 crore in April.
In terms of debt, FIIs
infused Rs 1,463 crore in the June quarter as against Rs 19,398 in the March
quarter.
After taking the
latest withdrawals into account, FIIs have made an investment of Rs 41,993
crore into the equity market so far this year and Rs 20,861 crore into the debt
market during the same period.
The BSE 30-scrip
barometer Sensex has gained 0.15% this April-June period to close at 17,430
points on June 29.
Although, the number
of registered FIIs in the country were 1,758 at the end of June quarter as
compared to 1,765 in March quarter. Besides, total number of sub-accounts stood
at 6,336 in April-June period of 2012 as against 6,322 in the preceding quarter.
Russ Koesterich from
iShares has cited David Wang as a creator of this list with the 15 riskiest
countries in the world. Brazil
is at 15th. We don’t understand how come Poland ,
Norway and South Korea are there while Portugal and Greece don’t even show up on the
list.
Anyway, according to
Russ, Wang based his conclusions on the following criteria:
i) Countries
exposed to the European sovereign debt crisis should be classified as higher
risk;
ii) Developed market countries with stable currencies during volatile
periods should be classified as lower risk;
iii) Emerging market countries with
more cyclical sector exposure may be higher risk;
iv) Emerging market countries
with better fiscal and growth situations should be classified as lower risk.
Here’s his list of
the top 15 riskiest countries today, i.e. the countries whose valuations are
most sensitive to “risk-on” and “risk-off” sentiment shifts:
1) Hungary 2) Italy 3) Austria 4) Sweden 5)Poland 6) Finland
7) Spain 8) Germany 9) France 10) Russia 11) Norway 12) South Korea 13)
Turkey 14) Netherlands 15)
Brazil
DENNIS GARTMAN'S TRADING RULES
1. Never, Ever, Ever: Under Any Circumstance, Add to
a Losing Position… not ever, not
never! Adding to losing positions is trading’s carcinogen; it is
trading’s driving while intoxicated. It will lead to ruin. Count on it!
2. Trade Like a Wizened
Mercenary Soldier: We
must fight on the winning
side, not on the side we may believe to be correct economically.
3. Mental Capital Trumps Real
Capital: Capital
comes in two types, mental
and real, and the former is far more valuable than the latter. Holding losing
positions costs measurable real capital, but it costs immeasurable mental capital.
4. This Is Not a Business of
Buying Low and Selling
High; it is, however, a
business of buying high and selling higher.
Strength tends to beget strength,
and weakness, weakness.
5. In Bull Markets One Can
Only Be Long or
Neutral, and in bear markets,
one can only be short or neutral. This may seem self-evident; few
understand it however, and fewer still embrace it.
6. “Markets Can Remain
Illogical Far Longer Than You
or I Can Remain Solvent.”
These are Keynes’ words, and illogic does often reign, despite what the
academics would have us believe.
7. Buy Markets That Show the
Greatest Strength; Sell
Markets That Show the
Greatest Weakness: Metaphorically, when bearish we need to throw rocks into the
wettest paper sacks, for they break most easily.
When bullish we need to sail
the strongest winds, for they carry the farthest.
8. Think Like a
Fundamentalist; Trade Like a Simple
Technician: The fundamentals
may drive a market and we need to understand them, but if the chart is not
bullish, why be bullish? Be bullish when the technicals and fundamentals, as
you understand them, run in tandem.
9. Trading Runs in Cycles, Some
Good, Most Bad: Trade large and aggressively
when trading well; trade small and ever smaller when trading poorly. In
“good times,” even errors turn to profits; in “bad times,” the most well-researched
trade will go awry. This is the nature of trading; accept it and move
on.
10. Keep Your Technical
Systems Simple:
Complicated systems breed
confusion; simplicity breeds elegance. The great traders we’ve known have the
simplest methods of trading. There is a correlation here!
11. In Trading/Investing, An
Understanding of Mass
Psychology Is Often More
Important Than an Understanding of Economics: Simply put, “When they are
cryin’, you should be buyin’! And when they are yellin’, you should be
sellin’!”
12. Bear Market Corrections
Are More Violent and Far
Swifter Than Bull Market
Corrections: Why they are is still a mystery to us, but they are; we accept
it as fact and we move on.
13. There Is Never Just One
Cockroach: The
lesson of bad news on most
stocks is that more shall follow… usually hard upon and always with detrimental
effect upon price, until such time as panic prevails and the weakest hands finally
exit their positions.
14. Be Patient with Winning
Trades; Be Enormously
Impatient with Losing Trades:
The older we get, the more small losses we take each year… and our
profits grow accordingly.
15. Do More of That Which Is
Working and Less of That
Which Is Not: This works in
life as well as trading. Do the things that have been proven of merit. Add
to winning trades; cut back or eliminate losing ones. If there is a “secret”
to trading (and of life), this is it.
16. All Rules Are Meant To Be
Broken…. but
only very, very infrequently.
Genius comes in knowing how truly infrequently one can do so and still prosper.
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