Indian Stock Market Trading Golden Rules

We are mentioning few golden rules for trading and investing in Indian stock market or in any other Stock market.

If you want to be a successful intraday / day trader or Positional / Delivery investor then simply follow these golden rules.

"Trading runs in cycles; some are good, some are bad, and there is nothing we can do about that other than accept it and act accordingly"
Think in terms of probabilities and act upon them. There are no certainties in trading. You can keep yourself out of trouble by thinking in terms of probabilities. Get comfortable with approximate predictions and interpretations.

"To trade/invest successfully, think like a fundamentalist; trade like a technician"

Along with economic fundamentals that will drive a market higher or lower, but we must try to understand the technical as well.

"Don't be a hero. Don't fight the trend. Follow the money flow"
You should forget the news, remember the chart as chart already knows the news is coming and buy on rumors; sell on news.

"In trading/investing, an understanding of mass psychology is often more important than an understanding of economics"
Trading is a psychological game. Most people think that they're playing against the market, but the market doesn't care. You're really playing against yourself. Hope, fear and greed are not strategies: they are emotions. Simple emotions are not an effective strategy. Positive emotions could cause us to fail to apply risk precautions. Negative emotion could cause us to hesitate.

"Learn to monitor yourself and draw conclusions from your mistakes. "
Predetermine maximum losses in every potential trade. Do not risk more than 5% of your capital on any trade. Don't average your losses.

"Buy that which is showing strength - sell that which is showing weakness"
The public continues to buy when prices have fallen. The professional buys because prices have rallied. This difference may not sound logical, but buying strength works. The rule of survival is not to "buy low, sell high", but to "buy higher and sell higher". Furthermore, when comparing various stocks within a group buys only the strongest and sells the weakest.

"Think like a guerrilla warrior."
We wish to fight on the side of the market that is winning, not wasting our time and capital on futile efforts to gain fame by buying the lows or selling the highs of some market movement. Our duty is to earn profits by fighting alongside the winning forces. If neither side is winning, then we don't need to fight at all.

"When you lose, don't lose the lesson!"
Forget the names but remember the events. Those who don't remember the past are doomed to repeat it. Make mistakes with composure and character, without blaming others, and don't dwell on mistakes.

"Evaluate your results at least monthly".
Monitor your P&L, your win/loss ratio, and the relationship between your biggest wins and worst losses. Reviewing these results helps you continually improve your understanding of the markets and yourself.

"When in doubt, get out."
Scrutinize your positions at all times, each day, and you will not be left holding a stock without reason. Be willing to change direction at any time, because your flexibility as an individual investor is a big advantage which should be embraced!

"There is no "genius" in these rules. They are common sense and nothing else, but as Voltaire said, "Common sense is uncommon." Trading is a common-sense business. When we trade contrary to common sense, we will lose. Perhaps not always, but enormously and eventually. Trade simply. Avoid complex methodologies concerning obscure technical systems and trade according to the major trends only".