1. Forget the news, remember the chart. You’re not smart enough to know how news will affect price. The chart already knows the news is coming.
2.
Buy the first pullback from a new high. Sell the first pullback from a
new low. There’s always a crowd that missed the first boat.
3.
Buy at support, sell at resistance. Everyone sees the same thing and
they’re all just waiting to jump in the pool.
4.
Short rallies not selloffs. When markets drop, shorts finally turn a
profit and get ready to cover.
5.
Don’t buy up into a major moving average or sell down into one. See #3.
6.
Don’t chase momentum if you can’t find the exit. Assume the market will
reverse the minute you get in. If it’s a long way to the door, you’re in big
trouble.
7.
Exhaustion gaps get filled. Breakaway and continuation gaps don’t. The
old traders’ wisdom is a lie. Trade in the direction of gap support whenever
you can.
8.
Trends test the point of last support/resistance. Enter here even if it
hurts.
9.
Trade with the TICK not against it. Don’t be a hero. Go with the money
flow.
10. If
you have to look, it isn’t there. Forget your college degree and trust your
instincts.
11. Sell
the second high, buy the second low. After sharp pullbacks, the first test of
any high or low always runs into resistance. Look for the break on the third or
fourth try.
12. The
trend is your friend in the last hour. As volume cranks up at 3:00pm don’t
expect anyone to change the channel.
13. Avoid
the open. They see YOU coming sucker
14.
1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower
highs and a double bottom.
15. Bulls
live above the 200 day, bears live below. Sellers eat up rallies below this key
moving average line and buyers to come to the rescue above it.
16. Price
has memory. What did price do the last time it hit a certain level? Chances are
it will do it again.
17. Big
volume kills moves. Climax blow-offs take both buyers and sellers out of the
market and lead to sideways action.
18. Trends
never turn on a dime. Reversals build slowly. The first sharp dip always finds
buyers and the first sharp rise always finds sellers.
19.
Bottoms take longer to form than tops. Fear acts more quickly than greed
and causes stocks to drop from their own weight.
20. Beat
the crowd in and out the door. You have to take their money before they take
yours, period.
Important points for
option traders
As option trader
remember certain golden rules for option trading
1. Dont hold and
sit tight with your option. Trade every day. Say, you have bought a put
option at 100, lets say it has come to 90, you dont have to wait for it
to go above 100 to book profit, you sell your option on
markets intraday fall and then you buy back the option on
market rise and pocket the difference of at least 10 to 15. As far as possible
avoid carrying over of options unless you are sure of the markets next day. If
you bought a call or a put at start of the month at 150, you will find its
value at 75 or less by middle of the month so if you have not traded daily ,
half of the value is lost by mid month.
2.whether market goes
up or down or flat, option value will reduce by atleast 5 points every day, so
trading daily at least gives you back the daily 5 point automatic
loss due to time decay. So writing options (selling fresh a call instead of
buying a put after market rise or selling fresh a put instead of
buying a call after market falls ) have a much better chance of gain
than buying options.
3. If your
option value goes down by 25% , boldly quit the option. This will protect you
from seeing zero value for your option. The habit of holding on to the option
thinking that it may gain after some days may give you only 1 success out of 10
attempts so be bold to quit early. (this is the most important point in option
trading, people generally book big loss in options when this golden point is
neglected.)
4. Do not
exhaust all your money in buying options. Only trade in 60% of money and always
have 40% reserve for opportunistic trades.
5. Though
averaging of options looks very attractive, it is like slow poison. Avoid
averaging as far as possible. Adjust your mind to do reverse trade,
meaning in case of holding 5000 put, sell a lower option say
4800 put in case of fall in markets & rise in put value, or in case
holding 5000 call, then on market rise when call value rises sell higher
call of 5200 or if holding a put, boldly buy a call against the
objection of your mind.
6. The above
option rules are time tested and mostly found to be correct. Although
most of the time your analyst will guide you when to buy or sell
but you on your own also be rigid on the above 5 golden
rules for options. You may fail once but 9 out of 10 times you will
not regret.
7. The most important
thing to be kept in mind is that you must have your own mental must quit levels
say about 5 or 10 points to avoid bigger loss in case the communication from
advisers side fail due to unforeseen circumstances.
8. In case you are
holding an option without stop loss or hedging & it goes
badly against you, then do not panic, around the end of the 3rd week of
the month quit the option and buy the same option of next month and after the
market having gone in one direction, it will retrace some amount to help
you to gain in the next months option as the current month option would become
zero if held against the current trend.
9. The most important
point to remember in option trading is, in case you have bought a call and it
has gone against you, then while averaging by buying another call at a lower
price, never hesitate to buy a put also . Meaning every time you average your
original option, at each time buy an opposite option also. So every time you
average the original call, at each time buy a put also along with the call .
This put invariably will be your protector as the averaged call will
invariably become zero. Remember this golden rule.