Ten Commandments of Successful Online Stock Trading

ten commandments of financial successThe overall key to successful online stock trading is self discipline and not allowing emotion to contribute to your decision making.

The way to do this is to have a set of rules which you follow religiously, even when your heart says something else. Consider them as stock trading commandments which when adhered to, will deliver financial success.

As in life, if you waver from these trading rules you are effectively kissing your money goodbye.

So here they are, follow them as closely as you do the original ten commandments and you will indeed prosper.

Commandment 1: You must follow your own commandments.

It stands to reason that if you go to the trouble to develop a set of rules then they need to be followed rigorously. Whilst human nature is what it is, the temptation will always be there to adjust, vary or break the rules. However strong self discipline is required to always trade online in accordance with the rules you have agreed with yourself to be the correct way to execute your trades.

Commandment 2: You will never risk more than 3% of your total portfolio on any single online stock trade.

The long quoted finance adage says there are many old traders, there are many bold traders but there are never any old bold traders. Protecting your capital base is fundamental to successful online stock market trading over time.

Commandment 3: You will cut your losses at x% when you are obviously wrong.

The x% is this commandment can range between 5% and 15% as a guideline for sound online trading, and it is quite acceptable to have an even lower level of tolerance for loss. The key principle is to have preset points (called stop loss) within that tolerance range with a view to minimizing loss when you are obviously in the wrong place. For this rule to work efficiently you must stay abreast of the performance of your stock and act immediately you hit your stop loss point.

Commandment 4: You should never set price targets.

When you adopt this approach you will be able to maximize your return from rising stocks – just let the profits run as nobody can consistently predict where a stock will peak. The corollary of this rule is you should never form the view that a stock has risen too far in too short a time. It is always our intention to get the biggest profit possible and there is nothing wrong with forfeiting some percentage of that profit in case the stock goes a lot higher.

Commandment 5: You should master one online trading style.

Once you have decided on your trading approach you should keep expanding your knowledge and become really proficient at your chosen style. This is far better than moving from one trading methodology to another in an effort to be an expert at everything – it just cannot be done. Being jack of all trades and master of none is not the way to be a successful online investor.

Commandment 6: You should only be led by price and volume.

Every half baked expert will give you their unsolicited view of the market and specific stocks, but ignore them all. The only information that matters is the stock price and the volume of trades. Period.

Commandment 7: You should never ignore a valid signal.

A successful online trader always acts when an entry signal appears, so do it. Short and sweet.

Commandment 8: You should never use intraday data for online trading decisions.

Trading using data from the current day’s market hours is fraught with danger as a stock price rarely stays static throughout a full day and you really want a longer time frame for your decision making. If you become reliant on this daily data, especially for short term trends and momentum indicators, you can end up making some seriously wrong choices.

Commandment 9: You need to take time out for recharge.

To make a success of online stock trading you need to be in good shape, both physically and mentally. The stress that builds up when paying close attention to your trading activities can be emotionally draining and will impair your judgement. Take regular breaks from your computer screen and do other things to refresh body and mind. A highly stressed trader will not have a long trading career.

Commandment 10: Thou shalt be an above average trader.

Believe it or not, to enjoy success in the stock market there is no requirement to do extraordinary things. All you need to do is avoid inconsistency and apply discipline to your trading. Every day you should check that you have not wavered from your approach which is summarized in these ten trading commandments. If you have wandered from the straight and narrow pathway, then thou shalt read them again.

To your online trading success.

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