Stock trading has become a steady source of income for many individuals. Retail traders are trading the major stock market and making decent profit without going through much trouble. But to earn consistent profit in the stock market, a trader needs to learn about the technical and fundamental details. Without having basic knowledge, no one should invest in the stock market.
In this post, we will discuss the top five rules which will let you trade the stock market like a pro. Read this article carefully as it is going to change your life.
Learn technical analysis
The first thing you need to learn is technical analysis as it will help you to find the potential trade signals. Moreover, it can also help a trader to filter the bad setups from the market. If you intend to execute the trade with emotions or based on your intuition, you are making a big mistake. Even if you pay attention to rumors in the market, you are going to lose money most of the time. Try to do the technical analysis in a higher time frame so that you don’t have to deal with too many false signals. If possible, incorporate a price action confirmation signal into your technical analysis process as it can improve your trade execution technique significantly.
Find a reliable stockbroker
New investors in the stock market hardly pay attention to their trading environment. Most of the time, they jump into the retail trading business without knowing the importance of a brokerage firm. On the other hand, elite traders always trade with high-end brokers like Saxo Bank to ensure a professional trading environment. So, choose your broker very carefully as it will help you to trade in a professional environment. Moreover, you will be able to do the advanced market analysis using high-end trading platforms. However, this doesn’t mean you should start looking for a super complex platform that is very hard to use.
Trade with protective stops
It is often seen the rookie traders are not using protective stops in their trades. They trade the market with the attitude that they will certainly win the trade. But that is not how the market works. No one can predict the outcome of any trade in this market. So, you need to take the trades with protective stops. By limiting the losses, you should be able to survive in this market in the long run. At times, the market will hunt the stop. This is normal. You should not become frustrated with such losses and break the rules. Always abide by the rules and try to find high-quality trade signals in a higher time frame.
Risk to reward ratio
In the stock trading profession, you should always trade the market with a high risk to reward ratio. Professional traders often take their trades with a 1:4+ risk to reward ratio. You might be wondering that it is an impossible task. But if you analyze a higher time frame, you should be able to find such high-quality trade signals. Try to take the trades with the trend as it will improve your chance of winning the trade. Forget about the aggressive attitude and be humble while taking the trades. If you fail to find a high risk-to-reward ratio in trades, you should avoid taking any trades.
Analyze the news data
In the stock trading business, news factors are crucial. Studying the news is also known as doing fundamental analysis. If you are new to this market, you might think technical analysis is the most important part of the stock trading business. But if you carefully evaluate the trade signals, you will notice that most of the profitable trade signals are formed right after the major news releases. So, take your time and learn about fundamental analysis.