1 - Never trust the advice or ideas of trading software vendors, stock trading system sellers, market commentators, financial analysts, brokers, newsletter publishers, trading authors, etc., unless they trade their own money and have traded successfully for years.
Keep in mind that Wall Street and other financial firms make money by selling you something - not instilling wisdom in you. You should make your own trading decisions based on a rational analysis of all the facts.
2 -You should always aim to have between 5 and 12 stocks in your portfolio when investing in the share market. The trick is to not have lots of stocks with small amounts invested in each. Instead, you only require a small number of the right stocks with larger amounts invested in each.
3 - Never invest more than 20% of your total capital in any one stock. If you invest in the share market you need to accept that some stocks will fall in value
PLAN YOUR TRADE AND TRADE YOUR PLAN.
You must have a trading plan to succeed. A trading plan should consist of a position, why you enter, stop loss point, profit taking level, plus a sound money management strategy. A good plan will remove all the emotions from your trades.
FOCUS ON CAPITAL PRESERVATION.
The most important step that you must take when you deal with your trading capital. You main goal is to preserve the capital. Do not trade more than 10% of your portfolio in a single trade. For example, if your portfolio is $10,000, every trade should limit to $1000. If you don't do this, you'll be out of the market very soon.
KNOW WHEN TO CUT LOSS.
If a trade goes against you, sell it and let go. Do not hold on to a bad trade hoping that the price will go up. Most likely, you end up losing more money. Before you enter a trade, decide your stop loss price, a price where you must sell when the trade turns sour. It depends on your risk profile as of how much you should set for the stop loss.
TAKE PROFIT WHEN THE TRADE IS GOOD.
Before entering a trade, decide how much profit you are willing to take. When a trade turns out to be good, take the profit. You can take profit all at one go, or take profit in stages. When you've recovered your trading cost, you have nothing to lose. Sit tight and watch the profit run.
DO NOT TRADE BASED ON A TIP FROM A FRIEND OR BROKER.
Trade only when you have done your own research and analysis. Be an informed trader.
KEEP A TRADING JOURNAL.
When you buy a stock write down the reasons why you buy, and your feelings at that time. You do the same when you sell. Analyze and write down the mistakes you've made, as well as things that you've done right. By referring to your trading journal, you learn from your past mistakes. Improve on your mistakes, keep learning and keep improving.
WHEN IN DOUBT, STAY OUT.
When you have doubt and not sure where the market or stock is going, stay on the sideline. Sometimes, doing nothing is the best thing to do.
DO NOT OVERTRADE.
Ideally you should have 3-5 positions at a time. No more than that. If you have too many positions, you tend to be out of control and make emotional decisions when there is a change in market. Do not trade for the sake of trading.
