What do we understand by discipline? It means stick to certain rules for your goal to be accomplished. In the stock market, either you are a short-term trader or long-term investor, you must follow trading discipline in order to achieve your goal. It is hard to explain the importance of trading discipline in the stock market, but failing these, lead to a capital loss. Let us discuss golden rules of investing in stock market.
- Start off with a trading plan and stick to it.
Always stick to your long-term goal and work towards to achieve it. Your trading plan should outline what is the expected rate of returns, how will you approach the market at different valuations, maximum risk per trade, maximum loss of your capital, etc.
- Never jump off to any stock for investment
Always do your homework before investing in any stock, and always look for stop-loss point, entry-level and target point. Always do technical and fundamental analysis of the stock before you invest in it. If you are not comfortable in any stock, do not invest.
- Let your investment be a part of your long-term financial plan
Always make sure that whatever investment you are making, it should be a part of your long-term goal. Either you are doing intraday trading or swing trading, you should always have the picture of your goal in mind. You should not involve yourself in any gambling trade, no buy-sell without any technical or fundamental analysis. Even a small loss will have a larger impact on your long-term goal.
- Learn to honor your stop loss
You cannot be always right when you are making an investment. You must accept that losses are also a part of stock market investment. But this loss should be the calculated one and make sure, you will never have big losses. If you are wrong on any trading idea, stop loss should be there to protect you from having big loses and never move your stop loss below the set level in a view that it will hit, and you will make losses. Always maintain a stop loss discipline in your trading.
- Learn to honor your profit target
Same as stop loss, you should maintain a discipline of booking profits as well. Sometimes, a stock hits your target but till you don’t exit from that position, you will always have the probability of making losses in that trade. Always remember, profit is what you book, all else is profit illusion.
- Cut your coat according to your cloth
Don’t oversize your risk-taking capacity. Always buy for what you can bear if a trade turns in to losses. Don’t see one side of the market that you will only have profits. Always look for your losses, the market will take care of your profits.