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What are the 12 rules for trading shares?

On March 9 2016 Wall Street racked up seven years of bull market activity, as measured by gains in the Dow Jones, the Nasdaq 100 and the S&P 500. Traders who consistently generate profits on equities do not do so in a haphazard way – there is a clear strategy behind their success. So what are the top tips for trading shares?

Please bear in mind that spread betting and CFD trading on shares both carry a high level of risk to your capital and can result in losses that exceed your initial deposit. They may not be suitable for everyone, so please ensure that you fully understand the risks involved.

1. Always select a reputable broker

The success or failure of your trading activity is dependent upon the credibility, integrity and professionalism of the trading platform that you use. You need to be confident of accuracy and reliability when trades are executed.

2. Choose a broker with the lowest costs for your trading needs

Check whether your broker takes its dealing charge as a commission or via the dealing spread, and look out for hidden platform or account maintenance fees. Pick a broker that minimises your overall cost so you can maximise your profitability.

3. Determine your timeframe

Are you focused on short-term price moves or long-term performance? Your answer may determine whether you want to buy physical stocks or simply speculate on share prices, in which case spread betting or CFDs could be right for you.

4. Start with a narrow handful of stocks

Focus on the companies or industries you understand well. For many traders, blue-chip stocks are the best place to start, as they carry a wealth of data, market interest and high volumes of trading activity.

5. Know your entry and exit points

You can use orders to open and close trades at your target points even when you are away from your trading platform.

6. Buy stocks at their pivot points

Once you see a stock has reversed on the upside, that reversal point is known as a pivot point. That’s the time to trade the stock – not when it is 5% above the pivot point.

7. Use spread betting or CFDs to go short

You can still generate profits in bear markets as spread betting and CFD trading let you take a position on falling share prices. But please note that spread betting and CFD trading carry a high level of risk to your capital and can result in losses that exceed your initial deposit.

8. Trade the news

Keep track of the latest political, economic and market news via blogs, financial articles, news channels, seminars, webinars etc. Act decisively with important news and remember that not every progression is linear in the markets.

9. Understand interactions between market components

For example, gold tends to be inversely related to the strength of the US dollar and equities in general. Equities have a close correlation with commodities like crude oil. Interest rates have an inverse relationship with equities, and dollar strength has a negative impact on demand for dollar-denominated commodities.

10. Trade with logic not emotion

Use tactics, strategy and sound advice to place trades that are likely to yield the outcomes you desire, and never get fixated on individual trades. Your goal is to ensure the value of your wins exceeds the value of your losses over the long term. And remember, spread betting and CFD trading carry a high level of risk to your capital and can result in losses that exceed your initial deposit.

11. Never place more than 5% of your bankroll on any one trade

Always allocate a fixed maximum percentage of your overall budget to any individual trade. That way, if your trade sours, you’re still liquid.

12. Use a demo trading account

A demo account is the ideal way to practice all the other tips in this guide before you trade with real money!

Brett Chatz

Published: 10 March 2016

You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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