When involved in the art of trading, there are rules that should help govern every decision. Traders should have certain rules in store that would help them make better decisions than just relying on their gut feeling. Although at most times, trading also involves instinctive input, nothing beat having some rules of trading to follow by.

Invest in the Direction of the Trend

The only way to make money from trading is by trying to foresee a future up trend on a certain stock and then investing in them in order to ride along from its gains. The ability to identify change trends in the market.

Just when a certain stock is about go up, try to invest in them in order to ride the trend and then enjoy the gains that come with it. Try to ride the trend by holding the position up until the stocks reach their plateau and about to dip, signaling the reversal of the trend. This would be the time to close the position by selling off on a high.

Cut Losses Fast

Another good rule to follow in trading is to let the profits alone when the stocks are still seen on an up trend. But when the stock is already about to suffer a loss, it would be better to cut the losses up to that point before it gets any worse. It would be good to ride on to a trend and holding position while the direction is still on the way up. This means that the position should not be changed while the stock is still doing better.

But it is also wise to plan a certain point where you might need to sell off your position just as the trend begins its reversal journey. One way to do this is by formulating a certain stock price dip relative to your high stock position. It might be below your high stock position but not below the starting stock price.

This would be called the stop loss level that will provide you with the sign to close your position once it is reached. This will help prevent you from a considerable loss in profits once a reversal in a trend is seen.

Diversification is Key

Wise investing and trading also involves trying to minimize risk. Being able to do so would help prevent suffering extensive losses. One way of minimizing considerable losses in a volatile market is by putting different investments on different areas of the market.

In trading the adage, "Do Not Put All Your Eggs In One Basket", is one of the wisest advice you can ever get. Diversification of investments allows your money to gain substantially from the various areas of the market.

Yes, you might miss out on getting the biggest profits by investing on a winning stock. But on the other hand, you are also avoiding quite damaging losses in terms of investment money by not putting all of it on a losing stock.