4 Successful Trading Rules

The following is a guest post from MoneyFed.com. I think it’s good advice you’d be wise to pay attention to. Enjoy!

Successful investors don’t just take a guess, they discipline themselves to follow a tested, yet flexible, investment strategy that is based on principles for both bull and bear markets. Today, we’re going to examine 4 basic trading rules that have proven to be successful for weekend investors of all skill levels.

Trade with the Market Momentum:

Knowing the overall momentum of the market can save you thousands of dollars. As the markets trend upward, you can invest with more confidence that 8 out of 10 stocks are also trending upward. After all, it is these individual stocks that cause a market to move in a particular direction. And if the markets trend downward, you may want to tighten stop losses, invest only in the leaders, use half positions rather than investing your normal full amount into any stock.

Always Use Stop Losses:

There is some disagreement in the investment community about using stop losses. Many argue investors may be stopped out prematurely from positions during an abnormal market condition (such as May 2010). Nevertheless, I’d rather take my profit and put it in my pocket than watch my stock drop below my purchase price or worse. Unless you’re a sophisticated investor who can watch your positions throughout the day, always use stop losses to minimize your risk and maximize your returns.

Plan your Trade and Trade your Plan:

If you’ve taken the time to develop an investment strategy, as noted in the article above, you can invest with confidence because you’ve back tested your ideas as well as paper traded them until you were consistently successful. Now be disciplined… and stick to your plan.

Review Every Trade Every Week:

It doesn’t have to take hours… but you must take a few moments to review every trade every week. Has anything changed (i.e. news, earnings report, market conditions, technical indicators, etc.)? Then make the necessary adjustments which may include little steps such as moving your stop losses or selling half of your position. Finally, successful investors learn from each closed trade. What worked? What didn’t work? How did emotion play a role in my decisions? Did I follow my investment strategy and if not, what impact did my lack of discipline have on my bottom line?