The market is not an easy game to play. It looks easy, it sounds easy, but the truth is the market is made to benefit the professional. That’s why it is so difficult for us to lose.

Look at all the DO’s and DON’Ts of trading in any market reveals some of the fairly simple rules to follow. You and I have seen these rules hundred times. They are rules that you and me, the professional and non-professional are SUPPOSED to follow. They have been time and money proven to work.

I’m going to share the 10 Basic Rules with you, I hope that with this and the trading plan, your trading account will at least at the positive region. Good luck!!

RULE 1: Trade with money you could afford to lose

Emotion could always out power our consciousness and logical mind. If you are investing money that might need to be used for rental next month, you’re doomed even before you place your order. More than often, your desperation to win will make you lose because you’ll be making a decision emotionally.

Rule 2: DO NOT overtrade

Many thinks that share market could double your money in no time. But the truth is, it could do the opposite very effectively. People who think like this will always trade in large position, and when they lose, they will double up the position. A few wrong trades without discipline could wipe out your account. Always mitigate your risk and set a comfortable risk level for your self. 2% risk level (2% of total capital) is always recommended. How much you could buy in each trade will be based in this percentage.

Rule 3: Buy @ Support, Sell @ Resistance

This is one of the difficult rule to follow as most of the time it is conflicting with the trend. When the stock is going up so much and approaching the resistance, many who do not realize the resistance will still enter the market, thinking that the price rally has not ended. As price hits the resistance and drop, they’ll hold their position hoping price will come back. They’ll become the weak holder and locked in their position.

Rule 4: Let the profits run, cut losses quickly

A lot of instances, many traders will get out of the trade after a small gain. This is particularly true for those who already have a couple losing trades. If you’re doing this, you’ll not be a successful trader and certainly not profitable one. This is because on the average you will be having 60-65% losing trades and 40-35% winning trades. But because you have managed your risk, the winnings of the 40% trades will be able to cover your lost and make you profitable. You need to let the profit run and trail your stop loss.

On the other hand, if you realize you have entered a bad trade, you’ll need cut the loss immediately. Prolonging this action usually means more loss (Exp: you have realized you bought your stock at the resistance level and the price drop).

Rule 5: Add to a winning position, not to a losing one

After you have bought a share and price drop a lot, many will buy more to “average out”. This is definitely a bad move. Because if you have met a “Black Swan”(a big fall), like the day after the  election, your account will be wiped out immediately.

But if you are in a winning position, you could top up but limit yourself to only half of your previous trade size. In this way, you could manage your risk. At worst case scenario, you would break-even (or small lost).

Rule 6: Go with the trend

Trend following is a strong strategy. Do not fight with the market or try to guess what is the next direction. Look at present price and volume and act on present information. Follow the current trend.

Rule 7: Never meet margin call

If you have margin call, it is the indication that you’ve overtraded and not manage your risk. Meeting a margin call will be like sinking into a quick sand. You will never be able to recover (or it will take a long long long time..if you’re good eventually). Get out of the position, and calm yourself before the next trade.

Rule 8: Have a plan & system

Like I have mentioned in the previous post (Trading Tips: Do you want to be sheep or tiger?), having a plan & system will give you an edge over the 90% ordinary traders. This is how the 10% professionals are doing, why not you?

Rule 9: Get Rid of Big “E”

Big “E” is our EGO. He operates most of the trader’s mind. He is the boss of the SHEEP traders. His main objective is to the traders overconfidence and topple them, fast and cruel. You need to listen to your system & plan, and not your emotion and certainly not EGO!!

Rule 10: Withdraw profit from your account

Even though we have established in the previous 9 rules that we could be successful if we follow them. But emotion could ruin everything and make us forget about all the logical thinking. Eventually we overtrade, don’t cut lost, meet margin calls and etc. We lost our previous winnings and capital.

So have a habit to withdraw portion of your winnings periodically (but not all). If this exercise continues in long run, you have successfully accumulate your wealth and beat the 90% SHEEP TRADERS!! Congratulation!!

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