basic rules of trading

here are some ground rules in stocks trading based on my 4-5 years experience of watching and playing with market prices. while i think the following are prudent strategies in terms of investing, other traders might want to be more aggressive and allow riskier moves; in the long term, however, wouldn't you want a more stable investment portfolio?

1. ON SPECULATIVE TRADING: never enter a trade on the premise of premarket or after-hours valuation. aside from having wider splits, these prices are exagerrated and are not written in stone - exactly why they're just mere speculations outside trading hours. it's best if you do transactions during trading hours.

2. ON DIVERSIFICATION: always split eggs in different baskets. better if you have mini eggs than large ones, so as to split the risks. there will always be that one or two positions that will lose, so it'll be better if your losses are only a small percentage of your overall portfolio. trust me.

3. PLAN YOUR TRADE: enter a trade with an EXIT price in mind; that way you won't unjustifiably greedy on one hand or hopelessly wishing on the other.

4. CHECK THE FUNDAMENTALS: never buy stocks of a company on the verge of bankruptcy. sure it may trade in a range but it will be difficult to get out of the rut.

5. MARKET NOISE: buy the rumor; sell the news. it seems that no matter it's something positive or negative, people will more often sell. it's like the news is an afterthought, a bygone opportunity. perhaps you should research a few days prior which stocks are due to move in the next few days, be it due to a selloff, the release of its earnings report, a buyout, or whatever.


6. ON COST AVERAGING: it will be difficult, but not impossible, to minimize losses via simple cost averaging. by experience, 25% of the time i do make a profit, however 75% of the time i actually lose money, maybe because my hasty temperament gets the better of me. maybe there's that: if you're an impatient trader, you might not like waiting for too long for a stock to regain its previous price, and you'll be stuck at the bottom for a long time - a week or two perhaps?.. or maybe even a month and still not back to original prices. thus it's best to stay away from cost averaging losing positions.

so there; surely in the next few months i'll be adding more input regarding prudent investing. for now, keep safe!