Trading Rules that I Adhere To
October 16th, 2013 singapore stock broker
Here's the trading rules that I follow when comes to pure trading (as compared to investing):
* Capital management: each position should not risk more that 2% of total investible capital.
* If a position already in profit, avoid allowing it to slip into negative.
* Keep the number of open position to a manageable number for yourself.
* Set strict cutloss. Position risk management: Do not risk more that 7-8% of each trade position (this 7-8% of the trade position has to be lower than % of capital cutloss). Follow it religiously.
Important: At initiation of position – must know exactly where is the cutloss point.
* If have no conviction of the trade but still want to proceed, always trade small(er).
* Wait patiently for the best possible entry points.
* Always trade in the direction of the major trend (trend is your friend).
* Averaging:
Never ever average down. Only average up – either in same size or reducing size (in dollar value).
After adding position, must know what is your weighted average cost and where is your trailing stop – and execute accordingly when time comes. No thinking, just act according to plan.
* Let winners run, cut losses short. (i.e. Keep losses small, and have big winners).
* Discretionary: Great traders reduces their trade size when things are not happening in their favor and increases (note: use with care and perhaps gradually, depending on your skill level) their trade size when they trade well.
Side note: On averaging down, I restrict myself to not average down except for dividend paying, quality blue chips counters and at far enough prices.
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Always make sure to manage risk, trade safe and well ;)
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