Basic rules of stock trading

1. Basic Rules of trading / investing in Basic Rules of trading / investing in stock exchanges stock exchanges Before starting the business of trading in stock exchanges a trader must have a trading strategy. It is essential to prepare a trading plan. Traders must plan entry and exit plans. Traders while making a plan or strategy must keep in mind how to minimize the loss and maximize the profit. If the traded starts to move towards adverse direction trader must not wait for more loss to occur and if the trade starts to move in a favorable direction trader must wait till maximum profit by trailing stop loss. The trader must have acquire some basic knowledge before starting trading in Options. Such as how the premiums of options determine, how it increases or decreases, what is the time value, what is in the money, at the money or out of the money. He must know when he is buying an option there is limited loss and unlimited profit. The trader must very cautious while selling of writing the options because in the selling case there is limited profit and unlimited loss. The new options trader may occur a huge loss in option trading in a lack of proper knowledge of options. The trader must calculate his own Risk bearing capacity also before starting trade in stock exchanges. He must calculate his limit of bearing loss in a trade. In case of stop loss in one trade, he must have the capital to do next trade. After deciding entry-level in the trade the trader must fix stop loss and target of the trade. The trader must decide that trade is intraday of holding. There are three types of options available in NSE. Nifty option, Bank Nifty option, and stock options. Nifty and Bank nifty option tips has weekly expiry also. In index options (Nifty and bank nifty) there is no problem of volume. In stock options, volume plays an important role. If there is less volume in stock options there will be lots of differences between buying and selling price of the option, it will result in difficulty in entry or exit in a trade. Stock or Index futures requires lots of Margin to trading. Options are invented for people who have less capital. There is a maximum Risk reward ratio in options trading. The maximum risk is options trading is how much premium paid for the option. The gain is unlimited. The trader can gain

2. huge profit if the trade goes in his favorable direction, but in case of trade goes in the opposite direction maximum loss can be premium paid by the trader. If a trader has less capital and having experience in trading in options he must start trading in options.