10 Golden Rules for Success in Stock Trading. (2024)

FAQs

What are the 10 golden rules of stock market? ›

Some essential rules of stock investment you should know are: understand the market, diversify investments, make small investments initially, invest for the long haul, avoid timing the market, do not follow the herd mentality, ask for expert help when needed, keep a check on rumours, and do not invest borrowed money.

Some traders follow something called the "10 a.m. rule." The stock market opens for trading at 9:30 a.m., and the time between 9:30 a.m. and 10 a.m. often has significant trading volume. Traders that follow the 10 a.m. rule think a stock's price trajectory is relatively set for the day by the end of that half-hour.

The 10,5,3 Rule: Expected Returns

Expect around 10% returns from long-term equity investments, 5% from debt instruments, and 3% from savings bank accounts. This rule helps investors set realistic expectations and allocate their investments accordingly.

A: Five rules drawn from Warren Buffett's wisdom for potentially building wealth include investing for the long term, staying informed, maintaining a competitive advantage, focusing on quality, and managing risk.

Buffett's circle of competence rule relates to buying stocks in companies that you understand. He believes that stock investors should be more concerned about a company's business than short-term stock price volatility. Buffett has long been a proponent of value investing.

Rule 1: Always Use a Trading Plan

You need a trading plan because it can assist you with making coherent trading decisions and define the boundaries of your optimal trade.

The logic behind this rule is that if the market has not reversed by 11 am EST, it is less likely to experience a significant trend reversal during the remainder of the trading day. This is particularly relevant for day traders who typically close out their positions before the market closes at 4 pm EST.

Enter the 1% rule, a risk management strategy that acts as a safety net, safeguarding your capital and fostering a disciplined approach to navigate the market's turbulent waters. In essence, the 1% rule dictates that you never risk more than 1% of your trading capital on a single trade.

Understanding the Rule of 90

According to this rule, 90% of novice traders will experience significant losses within their first 90 days of trading, ultimately wiping out 90% of their initial capital.

What is the 80% rule in trading? ›

The 80% Rule is a Market Profile concept and strategy. If the market opens (or moves outside of the value area ) and then moves back into the value area for two consecutive 30-min-bars, then the 80% rule states that there is a high probability of completely filling the value area.

The classic 60/40 portfolio calls for 60% stocks and 40% bonds. AllianceBernstein's 60/30/10 portfolio is trying to achieve similar returns—it still has 60% in an equities index, 30% in a bond index and another 10% in a TIPS index—but with steadier performance if inflation spikes.

The rule stipulates investing 90% of one's investment capital toward low-cost stock-based index funds and the remainder 10% to short-term government bonds.

Securities transactions by officers, directors and 10%+ shareholders. Section 16 of the 1934 Act requires a public company's officers, directors and holders of more than 10% of any class of equity security to report their transactions in such company's securities and to disgorge certain “short-swing profits.”

According to this rule, you should not risk more than 3% of your trading capital on any one trade, no more than 5% on any one sector, and no more than 7% on all trades combined. This helps to diversify your risk and protect your overall portfolio from significant losses.

In investing, the 80-20 rule generally holds that 20% of the holdings in a portfolio are responsible for 80% of the portfolio's growth. On the flip side, 20% of a portfolio's holdings could be responsible for 80% of its losses.