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Things To Remember While Trading

|Includes: Infosys Limited, Inc. (INFY)

Let me start by busting the gangland myth that stock market trading is equivalent to gambling. Trading becomes gambling when you let your ego come in between your decision making power and execution. If have a reasonable sum of capital and follow certain guidelines, you can easily make a living and a career out of trading. Let's discuss some of those guidelines:

Keep a strict Stop Loss:

This is like a writing in a stone for traders. Stop loss is a level beyond which a trader may risk loosing more capital. Now, what stop loss should be kept depends entirely on your risk appetite. If you have sufficient capital then keeping a 10% to 15% stop loss is sufficient. However, if you are walking on a tight rope, 5% should be the deadline. Now, in case you do not follow the stop loss method, chances of capital erosion increases. And then in a bid to lessen your losses you may resort to averaging. Averaging is good thing, but if your investment is in a bear market then the best thing to do is book your losses rather than facing risk of loosing the entire capital.

Patience

Irrespective of the instrument you are trading in any part of the world, it offers a minimum time, called a maturity period, for which you can hold your investment. Be sure that the stop loss which you keep should be in sync with the maturity period. Your capacity to bear the stop loss and your conviction to achieve the target should fall exactly in that maturity period.

Before you make your investment mentally prepare yourself to hold on to the instrument for at least one week. If your instrument has to show a movement, either positive or negative, it will show within that time. If it doesn't show movement, then simply exit.

Shun your Greedy attitude

Let's say you bought one lot of Infosys at Rs 1,000 with a target of Rs 1050 and SL of Rs 980. Once the value of the stock touches Rs 1,050, simply exit. Don't hold on expecting more positive movement as that decision could back fire also. A stock usually moves within a range which has a resistance and support. Once it's touches resistance it is bound head towards support. Hence the safest way is to exit. Always remember, an investor can hold on for long but a trader has to book profits within the volatility.

Always Hedge

This is a must follow strategy for traders. Hedging is a strategy that should be followed all the time. Following this strategy ensures that irrespective of the way stock market moves, you will earn. However, it is very important to know the pivot point from which you execute long and short trades. Moreover, this is best tool a trader can go for in case you feel wary of the markets.

Never Overtrade

Once you start making profits you tend to get confident and start trading above your comfort levels to earn more. That's exactly where traders start making mistakes. Before you sit in front of the channel decide how much you will invest and how much profit you may earn. Once that target is achieved don't go for more , irrespective of the movement shown by the market. The speed of making losses is thrice than that of making profits. And once you enter losses, you tend to panic prompting you to make wrong decisions.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.