Diversify: It is always good to diversify your trades & positions, and use the appropriate strategies, to manage your overall risk exposure. Some examples:
- Hedge by trading more than ten (10) different positions on the market.
- Spread your risk across different sectors & industries. Well-managed asset portfolios never put all their eggs in one basket.
- Consider both long and short trades to hedge your positions. One size does not fit all.
- Take into account the correlation between various assets, as they may be high, low or non-existent. e.g. Coke & Pepsi are positively correlated (their prices tend to follow each other) while the NASDAQ and grain futures are uncorrelated (one does not affect or is not affected by the change in price of the other).
Anti-Greed: It's always best to trade relatively small consistent profits rather than one large risky one. A trader or investor must have a set target of when to finalize a trade, whether losing or winning a position. Setting yourself a target price helps stay on track and keep trading sessions short & anxiety-free.
Stop-Losses: Whether it's an executed stop-loss order or a psychological one, they exist to keep traders out of trouble. Stop-losses come in varying forms, such as percentages or dollar values, and can be actively trailing or tailing the price. The time-frame also matters: hourly, daily, weekly or monthly, so plan & execute your stops accordingly.
Fresh Charts: Remember to keep an eye out on your charts, as they tend to rapidly evolve over time. What may have been a bullish trend before can easily have turned into a bearish one.
Time-Frame Matters: What may have been a great signal in the past hour, day, week or month, can change very quickly. Just like keeping the charts fresh, technical analysis (also known as technical studies) frequently change as time progresses, so one must continually monitor the charts and indicators for bullish, neutral or bearish signals.
Trading Rules: Write your trading rules down on a piece of paper and always follow them. Keep your list of rules nearby while trading, such as hanging it on a wall or mounting it in a picture frame and having it sit on your desk. This allows you to actively keep the rules in your mind and comply with your risk exposure. Your rules are for you and you only: they are made to keep you on track and to help you meet your long-term goals and/or daily objectives.
Practice: "Dummy trading" or "paper trading" before you trade with real money can be a great way to test your strategies. Remember that the real live markets are not always able to fill your requested positions and prices. In other words, slippage is very real, and must always be taken into account when trading on paper.
Education: Whether online or offline, it is best to educate yourself as much as possible to have a better understanding of the financial world. Read books or journals from reputable, qualified authors, and stick to the tried & true basics. Participating in courses taught by industry professionals is never a bad idea, and re-taking courses every so often helps you keep your mind fresh on what you have previously learned. Your financial institution may offer low-cost or even free courses to help beginners educate themselves when it comes to trading the markets.
Tools: Limit your tools, or technical indicators, to a select few that you understand very well. A trader or investor needs no more than three or four tools to analyze the markets. Cluttering your charts with every indicator or study under the sun will only confuse you. More data on-screen does not equal to better trades, success or profits. There is no such thing as a "holy grail" of indicators; only a select few studies out there cooperate & complement each other well.
Journals: Maintain a trading journal or diary to actively log your positions throughout your sessions. A log book of all positions & trades is an invaluable tool that no serious investor or trader can do without. This helps keep track of your progress and allows you to analyze your overall trading tactics periodically: daily, weekly, monthly or yearly. Are you always sticking to your rules? Where did you go wrong with a specific trade? When was your best and worst trading days and times? Are you able to spot any patterns that either help or work against your chosen trading strategies?
Plan: Your trading sessions must be planned before they are executed, so it is always wise to find the appropriate trading hours that work for you. Do you prefer trading early in the morning, or later in the afternoon? Do you stay away from Monday trading sessions?
Availability: Use the right charts based on your trading availability (hourly, daily, weekly and monthly). Are you able to sit in front of the trading [computer] monitor for the specified time and actively monitor your trades? Remember, trading is not necessarily intraday, as many trades can also take place on a once-a-week or monthly basis. Your available trading schedule will influence & shape your trading time-frames.
Exchange-Traded Funds: Contrary to what the media out there says, ETFS are generally less volatile than your everyday stocks. An exception to this general rule is the VXX (Volatility Index) and double (2x) or triple (3x) leveraged ETFs, with the latter being slightly difficult to chart.
Technical Indicators & Studies: Our preferred in-house technical tools are divergence-based, such as MACD and Slow Stochastics (STO) crossing close on the same time-frame. Our staff members draw support & resistance lines, and keep an eye out on price breakouts, to get a better understanding of the trend.
Stay Fresh: Follow different underlying assets: currencies, commodities, stock market, real estate, bonds and international markets, just to name a few. Keeping an eye out on the overall market helps you have an opinion whether we're going up, down or nowhere.
Trade Options: Learning how to trade options during times of congestion are a great way to lower costs and maximize profits. Strategies such as covered call writings (or covered put writings) are tried & true methods to generate income in times of uncertainty.
Charting Options Strategies: Trade option strategies that you comprehend very well. Charting a maximum profit & loss graph to visualize the option strategy's outcome is highly encouraged.
Options Schedule: Trade options with a time-frame that complements your trading schedule.
Time-Frames & Tolerance: Trade underlying assets that comply with your risk tolerance & trading availability by configuring charts with the appropriate time-frames.
Calendar Dates: Keep track of major upcoming holidays, economics events or significant market-altering news reports that may work against your strategies. If possible, avoid entering new positions on those days, or consider lowering your risk and market exposure by trading options on current open positions. Take note that Mondays are usually choppy due to traders returning from the week-end, and Friday afternoons tend to have a significant drop in trading volume.