Monday, December 3, 2012

My Personal Rules for Trading

Here are some of the basic rules I (try to) stick to -

1) Play Breakouts on expanding volume (relative to its average volume). These are least risk plays.

2) Do not enter new positions within first 30mins of trading day. These breakouts have high chances of failure.

3) Never hold positions into earnings, unless you feel you have some sort of an edge.

4) Scale in and out of positions. Usually a good way to quick profits and yet get the upside.

5) Try not to turn your winning positions into loosing ones. Always use STOPS, and move stops to cover profits. Never average your positions on the way down.

6) Always calibrate stocks with the market sentiment. Best of stocks would turnaround in a lousy market.

7) Keep an eye on relative strength of the stock.

8) Manage your risk. Position size should be balanced relative to the risk.

9) Try to combine fundamentals and sector strength with the stocks.

10) If you holding positions overnight, make sure there is no pending news.

Finally, always watch out for gap-ups and gap-downs, especially where they are in the market cycle. If the gap-up happens after few days selloffs, its likely to gap-up and go. However, gap-ups after a market run typically result in a topping tail.

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