10 Golden Rules of Stock Market Trading

Introduction

To be a successful trader, one must adhere to the golden rules of trading. Understanding the rules of stock market trading is crucial for success.

The fundamental rule is to buy at a discount and sell at a premium, based on traders’ objectives for making profits from the stock market.

Anyone can take financial risks and invest in the stock market as it is an open arena for all. But, you have to acquire the right education because the world’s top brains participate together in the share market.

Psychology and 10 Golden Rules of Trading

One important consideration is the psychology of trading. Many people who trade do it under the influence of emotion, which can lead to poor results. Recognizing your own emotions and how they could affect your trading decisions is crucial.

Before making any trade, you should do your homework and understand the risks.

Here are ten golden rules that might assist you in learning about trading and the stock market!

#Rule 1: Stock Market Trading is Not a Casino Game

There is always a misconception among many people that the stock market is a place for gambling. Also, many traders and investors treat the stock market as a tool for gambling. However, stock market trading is a very serious way to make money, just like other conventional businesses do.

There is always participation from a pool of seriously talented and highly qualified people representing diverse economic sectors, as the stock market typically represents a country’s financial health.

So, one who is willing to make fortunes in the stock market should consider stock market trading as a very serious full-time job or business. Unless you make it a serious, full-time profession, you won’t become a successful trader in the stock market. You must dedicate your time and efforts equally to staying successful in the stock market.

• What is Day Trading: The Best Tricks and Ideas
• Trading Psychology: How to Achieve Best Winning Mindsets
• Trading Journal: Why is it important in trading
• How to Make a Winning Trading Plan
• 10 Golden Rules of Trading Options: Dos and Don’ts

#Rule 2: Trading Requires Capital

Just as every business needs funds to start operating, stock market trading also needs money to begin trading. You can’t move in the stock market even a fraction of an inch without funds. Here, capital is the significant sum of money you need to trade.

Even trading with one dollar or one hundred rupees is possible, but this is not how the stock market works.

The sad reality is that you will experience extreme psychological strain if you decide to trade in the stock market with a small amount of money. You cannot survive in the stock market unless you can afford to lose money.

You cannot benefit from every trade, so you will also experience losing trades. So, you must be able to start a new trade if you lose money in the first one. If you have enough money, you can move from trade to trade, depending on the circumstances.

#Rule 3: Discipline and Consistency for Stock Trading

One must practice discipline and consistency throughout one’s life to succeed. You will inevitably fail if you don’t maintain discipline and adhere to strict rules in life. Trading on the stock market is also a real-life phenomenon.

Even a little grocery store takes discipline from the shopkeeper each day to be profitable. Until the owner is disciplined, the shop won’t generate any revenue.

Therefore, we now understand how crucial discipline is to success in every field. If you take stock trading seriously as a job, you must adhere to strict discipline. To continue a disciplined life journey of trading, you can never break the rules.

Losses in trading usually have repercussions for untrained traders. Trade losses have a significant influence on both personal and family lives. You should not engage in trading if you are unable to adhere to the regulations of the stock market.

When trading, it’s crucial to keep your levels of fear and greed under control. Trading is the art of consistently generating money on the stock market. Every trade acts as a lesson for trades yet to come. Until you learn something from the previous trades, you won’t be successful in the subsequent ones.

You shouldn’t repeat your mistakes in different trades. You must therefore closely monitor the transactions you initiated previously. Only a conscientious trader can adhere to these strict trading rules.

#Rule 4: Control Your Emotions in Trading

Successful traders and investors must have the self-control to not look for quick financial success. He should trade like a machine the entire time, setting aside all of his feelings. Before beginning any trading, the goal should be identified, and the timing of entry and exit should be taken into account.

If nothing works, one should operate on the movement or trend and be able to move as rapidly as a bullet, abandoning all hopes or hypotheses. Too much hope in trading can ruin anyone’s life. Therefore, every trader should spend a lot of time carefully analyzing the market or the stock they are interested in before making any judgments.

Making decisions is therefore the most important component of stock market trading, which may swiftly turn you from zero to a hero or vice versa. There is no quick way to become wealthy in the stock market; instead, you must be an extremely committed full-time worker with excellent analytical skills.

#Rule 5: Close Your Losing Positions Quickly

There are only two outcomes in stock market trading: one trader loses and another trader makes a profit. By taking chances in real life, you can repeat your mistakes. You cannot, however, repeat your mistakes in trading. You have the chance to make money on the stock market, but there aren’t many chances.

This indicates that when things go against your expectations, you cannot stay in the same position. You can take a chance on the hopes when you trap them in real life at some point in your life, but if you use this strategy in trading, it will have disastrous psychological and financial effects.

The only rule to follow if you want to survive stock market trading is to promptly cut or close losing bets. If you don’t close lost deals on time, the market will punish you. Every stock’s price action predicts its future movement; thus, it is important to closely monitor events and respond appropriately to avoid serious harm to one’s trading account.

The market will, of course, give you enough opportunities to make money in future trades if you close a losing deal. The only way to open up new profit opportunities is to immediately exit a losing trade.

#Rule 6: Catch the Winning Trade

It’s just as crucial to close lost trades early as it is to spot winning trades. You can’t jump into a moving bus or train in real life, but you can in trade. Stronger stocks have a better probability of turning a profit than weaker stocks do. The likelihood of making money from trading increases as you place more bets on stock market winners.

When a stock is strong or performing well, the selling pressure is typically absorbed. New buyers will enter the market with every sales push, maintaining the momentum that supports the prices. When you have a robust stock, demand and supply are under control. Strong equities typically have the potential to aggressively reverse course from any support level.

#Rule 7: Protect Your Capital

Capital, or money, is the core of trading in the stock market. Without capital, the stock market is useless. If you can’t protect your capital, you can’t progress in trading. Recovering lost capital is as hard as climbing Everest.

If you understand the value of capital, you should learn how to safeguard it. The only way to keep your trading capital intact is to value it more than the trades you love.

As long as capital is preserved, one can make a profit or survive till the end in the stock market. There is only one basic rule of capital protection: keep strict stop losses in each trade. A stop loss is a method of minimizing losses where you fix your maximum losses while initiating a trade.

A trader who never tries to cut losses will eventually fail in the stock market. It’s usually preferable to take a minor loss than to lose all of your money in one trade.

#Rule 8: Be a Lifelong Learner

The stock market evolves with time. So the basic thumb rule is to engage yourself in learning new things every day. The stock market is indeed a good teacher, where you can observe and learn something new every day. You must keep updating your knowledge with new things related to technology or market behaviors.

Never be adamant or egoistic; instead, be polite and down to earth while participating in the stock market. Learning new things about technical analysis or fundamental analysis from your fellow traders is not a bad idea. Be open to learning and accepting new things daily if you want to see a spike in progress in your trading life.

#Rule 9: Be Lazy Before Creating a New Entry

Anything hurriedly created is inherently risky, whether it be in real life or stock market trading. Therefore, careful planning, observation, and reaction are required before engaging in a new trade. You must make a diligent effort to read and comprehend the underlying stock’s or index’s price movement.

One should attempt to enter a trade only after having a thorough understanding of the trend. You must give enough time before making a fresh trade entry for everything to go smoothly.

The majority of the time, traders only evaluate the stock after becoming mired in a trade, which is a constant risk in the trading world. You must spend enough time reading and researching if you want to prevent suffering the effects of poor decisions in the future.

Therefore, a late entry always offers you protection and a successful outcome in trading, except in a few instances.

#Rule 10: Learn to Respect the Stock Market

If you don’t treat the stock market with respect and humility, it will always try to wreck your life. You must constantly approach the market as a humble student. Going against the market trend will not help you win the race.

The stock market’s mother and father are its price movement and underlying trends. Anyone who disrespects the market will quickly be expelled from the system.

You can’t earn even a penny if you go against the market trend. However, in some cases, you can be a winner by going against the majority. But doing this will surely drag you into hell in the long run. Many retail traders ignore market behavior, and as a result, they wipe out their accounts sooner than they could realize their mistakes.

Conclusion

In this blog post, I talk about the importance of some predetermined trading rules. I also emphasize that trading is a long-term activity that requires discipline and the right trading mindset. You should surely benefit from the aforementioned 10 golden rules as you start your ideal trading career.

Visit the Sensitrend Home Page to explore more articles!

A very informative video on Trading Psychology by Dr. Shrirang Joshi