Some of the tips that I have come across have helped me a lot in my investing and trading.
These guidelines not only have helped me stay in the game, but also to perform consistently in the market. The following are the compilation of tips from various sources on the net.
Personality: Assess your personality and decide if trading is for you? do you find it fun to track securities, prices and managing portfolio of stocks. Or do you consider trading as a chore? If you don't enjoy trading, you might be better off choosing someone else to manage your investments, like a Mutual fund or an ETF. On the other hand, if you can thrive on being analytical, then you can trade stocks directly or even options and futures.
Controlling Risk: Controlling risk is more important than any trading system itself. No matter what system you build, the system has to incorporate techniques to control the risk exposure.
Risk only a small percentage of total equity available for trading. When you take small risks and trade only a small amounts, you will have enough money to continue to trade and stay in the game.
Limit the overall portfolio risk to less than 25%. That is, keep the Maximum drawdown to less than 25%. Maximum drawdown is the measure of decline in portfolio value from its historical peak. The recovery percentage needed to come back from the drawdown is more than the percentage dropped. Hence limit the overall drop.
What is worthy: When looking out for new investing opportunities, your thinking should be: Which security is worthy of my dollars. Do some research to ascertain that a stock deserves your money before you invest in it.Use screening: Researching a stock takes time. Therefore use "Screening" that is available in websites like MSN, yahoo, etc. Use the narrowed down list of stocks to do the research.
Build a system: Depending on your knowledge about the market, build a comprehensive system that includes all the decisions that you would make before buying or selling a security. Regardless of how rudimentary your system is, use it to guide yourself make decisions. A simple system can be as simple as checking a few market parameters, industry parameters, company parameters and reading chart technicals. But use a system as your guide rather than your emotions. Know initial exit point before you enter a trade. When you know your exit strategy, one if the trade goes against you and another when the trade goes in your favor, you will minimize your losses and make consistent returns.
When the trade goes in your favor, lock in at least a portion of your profits. When trade goes against you, sell off the security before the losses become huge. Have an actual stop in the market; not just mental stops. You can use limit loss orders or stop loss orders for this.Spend 30 minutes a day to know the market condition, get a sense for market direction and to determine what dominant forces are acting in the market.
Trading Journal: Keep a trading journal where you note your losses, profits and your comments. Notice your trading patterns, analyze your strengths, your weaknesses and take corrective actions to improve your trading behavior.
Technical Analysis: After having done the fundamental analysis, use technical analysis to time your purchase or sale. Technical indicators are very useful to determine the overvalued or undervalued condition of the market. Get familiarized with important technical indicators like MACD, RSI, Bollinger Bands, Accumulation/Distribution, etc.
Buy on Dips: I have made it a habit to always buy on dips. Any small saving you can do in each trading will result in better percentage returns. Even if it is a bull market, lookout for retreats before you buy in.
Source: http://creating-wealth.blogspot.com/
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