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Rohit, who has been running CapitalVia for 8 years, pens his thoughts on what it takes to become a good trader.
1. Trade based on Rule, when in doubt, stay out:
First of all trader need to make a list of trading criteria, setup, or events that need to happen before you consider an order.
2. Use Stop loss never trade based on hope:
Create exit strategy, exit if the trade, go against you and rely completely on technical analysis level, don't hope when the market is against you, if stop loss level hit you should exit.
3. Act on your own judgment or else absolutely and entirely on the judgment of expert:
If you do your analysis very good, else create a list of sources which you consult before making a trade and follow strictly every aspect of their advise.
4. Constantly Analyze your mistakes:
First of all correct the mistakes which are outside your trading system such as bad execution and bad trade management. Make sure you don't place the trades which are not the part of your trading system. If good execution and proper trade management still leads to unacceptable drawdown, it is time to get back to the trading strategy analyse the mistakes and correct them.
5. Don't Jump the gun:
Be as technical as you can, Firmly stick to your trading plan. Make a checklist of signals and indicators which might be helpful in making the trading process as mechanical as possible.
6. Don't try to call every market turn:
You might want to set up for counter-trend trades near some major market tops and bottoms. But trying to get in at all the twist and turns will make you overtrade and be chopped up by the market.
7. Never Enter into a position without first establishing a reward to risk:
Establish a stop as soon as trade will executes and put a target order according to risk reward. Before your entry you may set the thing up, after that, you are at the mercy of the market.
8. Place Numerous bets on low risk ideas:
It is suggested that one should not take losses more than 1-2% of the capital in a single trade.
9. Don't fight the trend:
Trade in the direction of the trend, after noise against the trend. In order to do all these, you have to define what is a trend and what is noise. Do it yourself else take expert views.
10. Never, under any circumstance add to a losing position:
Adding to losing position will eventually and absolutely lead to ruin.
11. The objective is not to buy low and sell high, but to buy high and to sell higher:
If the market is in established trend and we trade in the direction of the same, buying a breakout above the high is a strategy where we should get opportunity to sell it at higher price.
12. In bull market we can only be long or neutral, and in bear market we can only be short or neutral:
This rule gives the best opportunity to achieve accuracy and risk reward in trading.
13. Be patient with winning trades and be enormously impatient with losing trades:
Remember it is quite possible to make profit as long as our losses are small and our profits are large.
14. Don't Overtrade:
Trading is not gambling, thus treat it with professional attitude.
15. Think about the risk potential before your reward potential:
Always consider possible losses before entering a trade. Then consider the potential reward. This will help you to be more realistic and not to be carried out by too much optimism and not to overlook the real risk involved.
16. Never trade more than you can reasonably afford:
If in the worse-case scenario the capital is lost or tied up in trading for a long period of time, are you ok with that?
17. Remember reversion to the mean:
What's hot today isn't likely to be hot tomorrow. If you failed to time the stock well, i.e. buying at right price exit it.
18. Do not overleverage:
Leverage is the key of earning exceptional return. However on the flip side it can be the reason of huge loss. So use leverage carefully and try to overleverage your position.
19. Proper position sizing is the key:
Position size is the key to keep your overall trading risk under control use proper money management rule taken by you or your trading expert to adjust no of stock you should trade.