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General Trading Tips

Some general pointers:

1. If you are a first time trader, you should not trade if you are on margin (borrowed money) or if losing more than 50% of your capital will alter your lifestyle significantly (allocate no more than 25% of your total portfolio to Active Trading). You can trade on margin when you become more experienced, later; We strongly recommend you to Papertrade first.

2. Always trade with stop loss or stop buy orders to preserve capital;

3. With your stops in place, monitor price movement and take profits at levels 2-10% or above; alternatively if the trend is very strong keep the position open and just trail the stock price with your stops. See chart below for an example where protective stop orders have been used to trail a trending stock. Note how the protective stop follows the stock price in the up as well as the down trend.

4. Never take a loss greater than 5-10%;

5. Close positions for short term trades at end of day when possible. If carried overnight, make sure stops are in place before next day's open;

6. Keep track of your trades for tax purposes as well as for your own reference;

7. If you are finding it difficult to take losses, stop trading immediately and re-assess your objectives.

Remember that taking small but frequent profits is the key to your success. Do not allow greed get in your way. Similarly, do not allow small losses to become large losses - always use tight enough stops to preserve your capital.

 

Other trading tips:

  • Never put advanced orders at night; always wait till you assess the market for the particular security you want to trade in. The reason for this is that often, stocks that have advanced too fast or declined too fast are riskier to enter and a correction in the other direction may be imminent. The general trend may resume after the correction but you may be caught if you are not careful. Our list occasionally includes such stocks. The benefit of taking such positions is obvious: they have high momentum and there is an incredible amount of mass psychology that drives the move.
  • Never trade without a stop loss, especially if you carry positions overnight. If the stock you are trading is volatile, use stops within 5-10% of your entry both for short and long positions. As the stock price moves in your favor, change your stops accordingly.
  • Never enter a market order, instead use limit orders.
  • If you have access to market-depth and decide to make your move, don't hesitate to jump in front of large volume orders since once they decide to make their move the price will quickly move out of your range.
  • Look for single large orders being filled - these often suggest institutions moving in on the stock and you may benefit from their presence.
  • Never trade on news (good or bad), trade on momentum and sound technical analysis (you can also trade on fundamentals of a company but we do not offer that service since holding periods can be considerably longer).
  • Don't hesitate to take profits at levels 2-10% higher than your entry; alternatively you can trail the stock price with your stops (leave a reasonable gap of 5-10% between the stock price and your stop to allow the stock to react). We recommend taking profits at the first opportunity since the objective is to generate profits frequently rather than having the capital locked in a security that may be losing momentum. You'll be receiving a list from us everyday and there will always be another winner.
  • When you are entering a position make sure you only enter with limit orders and specify any amount. The reason for the latter is that some brokers will give higher priority to any amount orders over all or none orders.

Our selection algorithm incorporates proprietary technical analysis tools. However, there are many other trading techniques and methods of analyses ranging from the traditional to the more advanced. For further reading, here is a list of books you may be able to order from an online bookstore or directly from the publisher.

We will add more pointers to this section in future based on the feedback we receive from you.





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