5 Important Trading Habits & Rules To Keep In Mind

Believe me or not, there are a lot of rumors about the Stock Market in India. You often heard, “Satta Bazar” claimed by many people but anyway due to Pandemic, Indian Brokers added millions of new users. This is all because people who don’t have trading habits or rules follow them and become profitable.

Stock Market is an easy game if you understand what you’re doing. You should never come to the market until you fully understand the risk, if you still think you can be a millionaire with Stock Market then read this completely to understand.

In this post, I am going to keep layman terms so every beginner can even understand all the trading rules. If you still don’t understand the basics, like Resistance & Support, Trend Lines, etc., then give a read to this article.

What New Traders Expect From Market And What You Should Immediately Stop Expecting?

  • Multibagger stocks giving 100-200% returns just like crypto’s recently
  • It’s just buying when the price is going up, sell when it’s going down
  • I can always wait and recover losses however, in the end, it always comes up
  • They have no idea about Derivative Market, Stop Loss, & Basic Working of Stock Market but still, try to work in this segment.

These are the things majority of new traders have in mind and pretty much all are false. Please remove this misconception from your mind and work towards learning, you’ll soon become profitable.

Now, I have been reading a book about the world-class Trading Habits by Steve & Holly Burns and I am trying my best to share the important habits from this book to help you out with your trading and investing journey.

Very Important Trading Rules & Habits You Should Learn And Apply To Remain Profitable


1. Your Winning Trading System Should Be Designed Uniquely

There is no one ever perfect in the market to get all the 100% accuracy in their trading. Yes, everyone no matter how experienced they are still tends to make losses in the market.

Therefore, we need to make our setup of trading in such a way that, your losses should be there but not more than the profits. In short, cut your losing trades faster and hold your winning trades longer. Stick to your analysis and if it went wrong in any way, cut the trade immediately while holding the trade with trailing stop loss if the trade went right.

In the end, you will be profitable in the long term since you will have more overall profits than overall losses. Take a look below at the risk: reward ratio and the required win rate for profitability.

A 1:1 risk/reward ratio requires a greater than 50% win rate for profitability.
A 1:2 risk/reward ratio requires a greater than 33% win rate for profitability.
A 1:3 risk/reward ratio requires a greater than 25% win rate for profitability.
A 1:5 risk/reward ratio requires a greater than 17% win rate for profitability.


2. Your Analysis & Trade Should Be On Pure Facts Instead of Your Own Opinions

Never ever do this. If you’re beginner traders, you will do this 95% of the time. You will satisfy yourself on why this stock will eventually go up by making your own stories or you might hear of someone speaking about it on TV Channels.

You need to get the facts right. On what facts exactly, you’re trading the particular stock? What is your Analysis?

If you’ve got the specific reason why you’re entering the stock will give you a higher winning percentage. You can work on many strategies available, like the Simple Breakouts, Support & Resistance, etc.

It is a lot better than trading on the basis of beliefs, a feeling, or just a mere prediction. Therefore, you need to gather up yourself, spend more time on drawing trend lines, watching breakouts with volume, backtesting each and everything.

Over time, you will be able to develop the skills of identifying the stocks very easily and trade on them with facts and all odds in your favor giving you a good winning rate.


3. Always Work With Trend & Avoid Trading Against The Trend

The trend is always determined on the particular time frame. If someone asks you “What’s the trend?”, you just need to ask them back “What’s your Time Frame?”. Hope you got an idea here.

No matter what, try to capture the trend on your own investing or trading time frame. A person whose time frame is 15 Minutes and his trend is uptrend while your time frame of 1 day doesn’t necessarily mean your trend is also an uptrend.

So, remember to always capture the trend in your time frame. You can easily use the Simple Moving Average to find out the trend or simply draw trend lines on your time frame.

Always work with trend in your time frame despite it is different for different time frames.


4. The Bear Markets Have No Long Term Support & The Bull Markets Have No Long Term Resistance

It is what it is. When the rally starts, there is no such thing as long-term resistance, the bull market repeatedly gives breakouts to 52 weeks high and then to an all-time high, and short-sellers get hurt during the bullish condition because resistance no longer holds back the increasing price.

Resistance is broken and broken, short-sellers are forced to cover their positions. In the Bull market, buying is eventually rewarded. Buying dips give traders and investors the chance to catch the next trip to all-time highs.

While the same happens in the bear market. During the 20% fall, panic covers up, weak hands get washed out and all key support levels are lost.

Stop losses are triggered and all rallies are sold into, and a down-trending market shakes many of the holders who prepare to buy after the downtrend ends. In a bearish market, the dips are no more bought into and are replaced by further dips until the selling is exhausted.

Now the signs of exhaustion start with Consolidation where accumulation continues and many will pick up the bottom of the market.

By this rule, you know and understand why you should cut the wrong trades faster and hold the correct trades for longer.


5. The Bigger The Market Gaps, More Likely The Trend Will Continue

I am sure, you’ve seen the Gaps in the market. When the market is trending and bullish, there are almost big gaps every day seen in the Market. This simply means that it is most likely that the trend will continue assuming that the market gaps are becoming larger over time.

If we see the other side, it’s the same for the trending and bearish market. The larger the market gaps downwards, the more likely the trend will continue downwards.

Therefore, you know and get the idea of the market trend especially for a long term.


Wrapping Up

These are the important trading habits and rules in the stock market which you should follow in the long-term trading and investing journey. To be able to remain profitable, you need to stick to rules and never break them. You will automatically find yourself profitable in the end.

In Stock Market, you need to disciplined to make money. Hope you enjoy the article, do leave in your thoughtful comments, and suggestions. I am completely open to your thoughts. If you really liked the article, take a moment to share it with your friends and family.

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Emad is the founder of this blog and is the sole writer & editor on this blog. He has been learning about finance and the stock market for the past 2 years and sharing his experience on his blog and explain complicated topics in simple layman terms.