Before we begin playing the game of stock trading, we want to set some game rules. With no strict set of rules to follow, we will let our emotions guide us and, particularly where money is involved, that will virtually guarantee failure. Although we may want to sometimes short stocks market a stock we do Not own, for which we get immediate cash, in the hopes of buying it back later at a lower price, thus pocketing the difference between the sales price and the eventual purchase price, here we shall only be concerned with purchasing stocks in the hopes that the price increases and we could sell them later for a profit.
Rule 1: only buy stocks go long, not market stock you do no town go short.
We need to determine how much money to put in danger, our first account balance. It has to be big enough to endure some even large first losses rather than get wiped out. Too many traders have the ideal strategy, but Gary Fullett everything before they even begin as they are underfunded. Had they began with enough money; they might have lived the down draft and finally made their luck.
Rule 2: have a beginning trading accounts of 25,000.
Stock trading can be a risky business and it is a business, not a Hobby, and that is why our company needs operating rules. We should just trade money we have the ability to lose and not have it change our way of life or our relationships with our loved ones and friends.
Rule 3: just trade money you can afford to lose.
Money management is critical, so we will never take a first trading Position with more than 5 percent of our trading money. If the trade turns out to be prosperous, we could double up on our place one time. By restricting the amount of money we put into any one trade, we avoid the possibility of getting wiped out if one stock goes bad.
Rule 4: never place more than 5 percent of your trading money into an initial Stock position rather than double your position more than one time.
We should just buy stocks that are in an upward trend or switching from a Down tendency to an upward trend. We do not need to catch a falling knife. Stocks can go much lower and higher than we think possible, therefore we are in need of a clear sign of leadership or a fairly sure sign of a change before we make a purchase.
Rule 5: only buy stocks which are in an upward trend.
In Profitable Stock Trading – 5 More Rules to Trade By we will explore the final five rules which will help propel us to stock market trading success.