Top Ten Rules Before Starting to Trade

To start, I thought I would share some of the most important rules an investor/trader should follow to become successful. Specially if you are new to trading, you will find these very useful.

1) Don't lose money: This is Warren Buffet's famous rule.

2) Measure the risks: Before you do any trade, calculate the worst case scenario and ask yourself if you would be willing to accept it.

3) Hedge your investment: buy some options that would hedge your investment in a worst case scenario, or even smarter would be to gain both from your hedge and your original investment.

4) Have some cash on the side: Always make small moves each time as there will be always a chance to make money. I should remind this a lot to myself. Many of the times I want to initiate a trade, I feel this is the absolute bottom, so I use all my intended capital. However, most of the time, we are not that lucky to have picked the bottom. So, it is better to make small moves each time for better results.

5) Let your invest do its job and be patient: Many of the times, you make the right trade, but you are not patient enough to let it mature. So, you may either get out soon with some loss or with not enough gain.

6) If you make a wise and hedged portfolio, try not to change it too often. It may just cut some of your future profits.

7) If you are an option trader, it is very important to choose a broker that has minimal commissions. Most of the brokers charge ridiculous amount of commission on your option trades which can eat up most of your profits.

8) Only read legitimate research articles to figure the future trend and avoid getting affected/scared by non-professional articles. Read and listen to the media news just to see where the speculators are trying to take the market to. In fact, many of the times, when there is a big sell off, I see it as a good buying opportunity and vice versa. If you are a naked option seller, this even holds more true. I have seen many of the times a good stock downgraded by an analyst, which instead made it a perfect buying opportunity. So, I do believe there is a lot of manipulation going on there.

9) Find some bullish and bearish stocks/ETFs you like by reading good research articles and get ready to take action when it is time. You should have an idea from the chart and other analyses whether a stock is cheap or expensive. You should try to buy cheap and sell expensive. If your don't get the price you want, at least you have preserved your capital.

10) Don't panic! This is one of the most important rules. If you follow the rule #2, you should not get panic anyways as you have measured the risks already. However, it may still come to you. Panic is the biggest enemy for a trader, so it needs to be seriously avoided.