Dec 6: 8 Tried and True Commodity Stock Trading Application Rules That Will Explode Your Profits … Now!

by David Jenyns on December 6, 2005

Some commodity Stock Trading Application rules are made to be broken, but when you`re trading, there are some rules are meant to be followed. Here some of the Stock Trading Application rules that I consider the most important principles of trading. I suggest that you make a copy of them and place them in your trading diary or tape them to your desk, so that you`ll always remember to follow them.

Commodity Stock Trading Application #1: Cut Your Losses

Never let your losses get out of hand. It is one of the most important things that you can do to ensure you are successful. Losses can devastate you emotionally and will diminish your trading capital, violating your primary aim in trading – to preserve your capital. If you could get successful traders to credit their success to one thing, many would select this rule.

Commodity Stock Trading Application #2: Let Your Profits Run

Hand in hand with the first rule is the second: let your profits run. Your trading plan will probably produce profitable trades less than half of the time. Therefore, you need to make sure that when you do achieve a profit, you get the most out of the move in the stock. Some up trends take time to develop; and you must wait until you see the high in the stock achieved and then the reverse in direction before you consider closing the position. Until you see the reverse, you won`t know if the stock is going to go any higher. Remember, your few profits must outweigh many losses.

Commodity Stock Trading Application #3: Follow the Trend

In trading, trends are the only friends you have. Always trade with the trend! Never attempt to identify the bottom in the stock or time your entry using that approach. If you do, you can be run over as the stock continues on its way down. There is often great force and momentum at work when a stock is trending in either direction, particularly when the trend is down. Don`t try to fight it. Why buy something that is heading in the wrong direction on the hope that it will turn around and head back up past your entry level?

Commodity Stock Trading Application #4: Don`t Overtrade

Don`t trade for the sake of trading. Never force the action. If you are not comfortable with any of your potential trades then don`t open a position. It is a mature decision to do this when conditions aren`t quite right, and you won`t be trading for the wrong reasons.

Commodity Stock Trading Application #5: Never Act on a Tip

Who hasn`t reacted to a tip they heard from somebody about a stock that is apparently going to the moon and never coming back? Never act on a tip; tips are rarely good. The worst part of tips is that you will probably stick with the trade even when the security starts to head against you. You will be more inclined to break the commodity Stock Trading Application rules and not cut your loss because of the ‘reliable` information you have heard about the stock`s future. Instead of trading on tips, have confidence in your own plan.

Commodity Stock Trading Application #6: Always Trade Liquid Stocks

It is a horrible feeling of helplessness to be stuck with a stock that you need to exit from because there aren`t enough buyers in the market. Liquidity is the ability to trade in a security without adversely affecting its market price. Always demand liquidity in your securities before you consider trading them, and you`ll never be stuck with a stock.

Commodity Stock Trading Application #7: Keep Positions Small

When trading, you need to understand and manage risk to achieve long-term success. If you want to completely avoid risk, then don`t commit any money to any financial market. If you are prepared to take some risk, then managing and controlling that risk will be crucial. One of the best ways to do this is to ensure you have, and use, a good position sizing model. This model will ensure that you don`t commit too much of your trading capital to a single position, allowing you to spread your risk across several positions.

Commodity Stock Trading Application #8: Don`t Buy Something Because it Looks Cheap

If a stock is cheap, there is probably a very good reason for it. Only consider stocks that are trending up. There is no such thing as a stock that might start to trend up any day. Even if a stock looks cheap, who is to say that it will not get cheaper? It may never increase in price again.

With these commodity Stock Trading Application rules, a solid trading system, and good money management, you can become a successful trader. Remember these commodity Stock Trading Application rules and use them. Particularly when you don`t want too.

David Jenyns is recognized as the leading expert when it
comes to MetaStock and designing profitable trading systems.

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