- 1. Thou must first know thy self and thy market well.
Trading stocks, currencies gold, or commodity futures, or any other securities(fast moving markets) via the internet can be terribly taxing! Before you decide to plunge into it you must know offhand if you are ready to lose a lot of good night sleep for just monitoring the markets; or if you have the stomach to take frequent roller coaster rides during peak market activities (like watching your investment tremendously grow within seconds just to see it melt down in the next)! You must know first if you have the discipline to be able to maintain your cool during wild and wide price swings and still be able to call the shots objectively according to your pre-determined trading objectives. This means you should not to let fear overshadow you when the market moves against your position, nor allow greed to take the better of you when the market is in your favor. Remember always that markets are frequently unpredictable and that you must learn to adapt to its peculiarities fast otherwise it will eat you up alive.
- 2. Thou must deal only with registered brokers.
For non-US based brokers, you must demand verifiable documentations from the broker regarding their affiliations and representations. Some online brokers are merely introducing brokers (IB), meaning they act as marketing representatives for a bigger broker, in which case you must demand to see the IB contracts and investigate the affiliation of the principal broker. Other brokers “white label” for their principals. Their websites may appear and have the looks of a big broker when in fact they are mere affiliates of other brokers. Don’t deal with white labelers if they don’t publish their principals. White labelers make money through an additional spread of a pip or two built in into their price quotes. While I don’t have anything against white labelers who are affiliated with established brokers of good standings, I would advise you to avoid them unless they have incorporated more add-on features or services other than those offered by their principals to justify the additional cost to you.
Big Daddy's suggestion that you deal only with registered brokers is not being biased against overseas brokers. It's just that online investors must always be provided with a forum or a venue to file any claims they may have against their online brokers in the future. And at this point in time,only U.S. based brokers can provide us with this safety net.
- 3. Thou shall shall not invest money you can not afford to lose!
- 4. Thou shall not use unprotected computers!
- 5. Thou shall not trade without a plan!
o the choice of item/market to trade, (which security, commodity, or currency)
o the specific position to take (whether to buy or to sell)
o the specific price range on which the position will be executed (entry point)
o the targeted price objective or exit point on which the trade must be closed
All these trading decision parameters must be clearly defined and set before executing any trade. Never attempt to trade fast moving markets online in the same manner and with the same do or die spirit as in p lacing bets on online gambling sites. Every trading decision must be based on a trading plan and every trading plan must be followed to the letter.
- 6. Thou shall not execute orders without trading stops!
Stops are vital to your becoming a disciplined investor. They help you decide without hesitation when to cut a losing or winning trade. They prevent you from becoming an emotional trader and a perpetual loser. But most important of all,trading stops limit your actual loses. I have seen people lose all their investments in one single session because they adamantly held on to losing positions in the hope that the price will soon make a turn-around. I have also seen people who have reached their profit objectives but out of greed, held on to their positions. And when the market whipsawed they ended up losing everything.
- 7. THOU SHALL NOT TRADE ON MARGINS BEYOND 250:1 RATIO.
- 8. THOU MUST ‘DEMO’ TRADE FIRST BEFORE ACTUAL TRADING.
- 9. THOU MUST KEEP YOURSELF WELL INFORMED AT ALL TIMES.
- 10. THOU MUST ALWAYS INSURE AN UNINTERUPTED COMMUNICATIONS WITH YOUR BROKER.