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Few Trading Rules using Technical Charts which may be of use to Pure Traders! Investors should stay away from these. Trading Charts if used sensibly can be utilised for Long Term Investors also.
1. Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming.
2. Buy the first pullback from a new high. Sell the first pullback from a new low. There’s always a crowd that missed the first boat.
3. Buy at support, sell at resistance. Everyone sees the same thing and they’re all just waiting to jump in the pool.
4. Short rallies not selloffs. When markets drop, shorts finally turn a profit and get ready to cover.
5. Don’t buy up into a major moving average or sell down into one. See #3.
6. Don’t chase momentum if you can’t find the exit. Assume the market will reverse the minute you get in. If it’s a long way to the door, you’re in big trouble.
7. Exhaustion gaps get filled. Breakaway and continuation gaps don’t. The old traders’ wisdom is a lie. Trade in the direction of gap support whenever you can.
8. Trends test the point of last support/resistance. Enter here even if it hurts.
9. Trade with the TICK not against it. Don’t be a hero. Go with the money flow.
10. If you have to look, it isn’t there. Forget your college degree and trust your instincts.
11. Sell the second high, buy the second low. After sharp pullbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try.
12. The trend is your friend in the last hour. As volume cranks up at 3:00pm don’t expect anyone to change the channel.
13. Avoid the open. They see YOU coming sucker
14. 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom.
15. Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it.
16. Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again.
17. Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action.
18. Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers.
19. Bottoms take longer to form than tops. Fear acts more quickly than greed and causes stocks to drop from their own weight.
20. Beat the crowd in and out the door. You have to take their money before they take yours, period.
Few Additional Rules:
MONEY: Never trade with money you cannot afford to lose
TREND: Always ride the trend and never try to decide a trend
SELECTION: Always select the stocks, for there are always bullish stocks in a bearish market and bearish stocks in a bullish market.
TIMING: Never initiate your trade at the opening bell, wait for a market to make initial high and lows
QUANTITY: Always while trading keep the amount same in each trade and not the quantity, ex: if have trade 50000/- in one, trade 50000/- in another rather than trading 100 shares in each trades
LEARNING: Blaming market is trying to hide your mistakes from yourselves,making fool of one’s self, thereby losing an opportunity to learn, markets are never wrong, the blame lies with trader.
INTROSPECTION: Always introspect at the end of every trading day, next day will work wonders.
R/R RATIO: Never ever enter a trade where the risk to reward ratio is less than 1:4
NO OF TRADES: Always trade in 2 to 3 stocks at any given point of time, how lucrative the market be, be master of some than being jack of all, keep buffering profits, you’ll find stock markets a wonderful place to be in…
STOP LOSS: Stop loss is essence for trading, never trade without a stop loss
AVERAGING: Averaging has no place in day trading, either u get out of the trade with the stop loss getting triggered or get the target
SUCCESS: Always use trailing stop loss, when the trade initiated, starts bearing results, to get maximum profit.
GREED: Always be ready to take the profits home, if the initial trades have worked for you, be ready to go home , do not trade for the broker
CONFIDENCE: If the markets are not making you confident do not trade, just for the sake of trading , wait for clear signals
RUMORS: Never trade on news or rumours, always follow the levels, remember, news does not make levels, it just triggers levels.
LEVELS: Never get panicked or exited by the happenings on the screen, stick to the levels and stop loss, else you’ll always end up loser
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