Five Golden Rules For Traders

1. Invest in the direction of the Trend!
The fastest and most risk free way to make money in the markets is to identify a change of trend in the market as early as possible, take your position, ride the trend and close your position shortly after the trend reverses.
Any market professional will tell you that it is impossible to buy at the lows and sell at the highs (or sell at the highs and buy at the lows) consistently, but it is very possible to catch 60 to 80% of much intermediate term and long term market movements.

2. Cut Losses Quickly.
In order to keep investing, you must preserve your capital. It is therefore important to keep the individual losses small in relation to the overall size of your investment. Always put Strict Stop Loss.

3. Let Profits Grow…
Stay with profitable trends as long as possible because the trend is likely to continue and make your profits even larger.

Let profits run while still guarding against the possibility that prices will turn around and take away much of your accumulated profits before the trend actually reverses. It is called a "trailing stop loss". This "Trailing Stop Loss" level is always some distance behind your trade. As long as the trend keeps moving in your favor, you stay in the trade. If the market reverses direction by the amount of the "Stop Loss', you exit the trade at that point.
Thus the "Trailing Stop Loss" will always protect your profits by insuring that you keep 80% to 90% of the accumulated profit.

4. Diversify.
Spreading your risk between different securities across different sectors reduces your odds of losing your entire capital on a single stock or industry sector.

Diversifying across different sectors is important because when the economy is digging itself out of recession, certain sectors whose profits are particularly enhanced by falling interest rates put in their best price performance. Then as the economy moves into the terminal recovery phase, the outperforming issues start to decline, but the market averages are buoyed by previous under performing issues, which thrive in this kind of environment.

5. Manage Risk.
Risk Management Strategy covers the most important element of managing risk by keeping your losses as small 1% of your trading capital.

Risk management Strategy ensures that you as an investor can continue to invest in the markets even after a couple of incorrect decisions. In fact if you follow "risk management strategy" you can continue investing in the markets for as long as you live. You will never ever have to worry about losing your entire trading capital.

Happy Trading!!! :)