The financial market has its own “intelligence and temperament” in going its own way. Now the question is whether the financial world has any rules to follow? Wealth Mentors chief executive officer Aaron Sim shares the “IO Commandments” of successful stock trading.
1. Trading is both science and art
Is trade a science or an art? To Sim, the answer is both. According to his observation and experience, the market can act ‘randomly’ due to the sudden interference from key players like central banks or major corporations on top of market sentiment, latest news event, and supply and demand. There is no trading method which is 100% accurate, traders have to drill on their craft. As practical advice for investment greenhorns, the meticulous expert has a recommendation.
“Backtesting with a virtual account over voluminous trade by using software and historical data hones the traders’ skills and builds their confidence,” said Sim.
2. Weighing your risk factor is the prime
It is tempting to go on a trade by just analyzing your rewards, and not the risks. However, history warns you to balance both, prior to a trade. For this reason, Sim advised , “Focus on your risk factor instead of your reward factor. It is more important to ask questions like drawdown before asking how much I could make.”
3. Diversification holds the golden key
Diversification is always the crucial consideration for a successful trader. By investing in a basket of stocks and staying away from a few specific individual stocks, it better protects the investors. Exchange-Traded Funds (ETF) are always a good choice because it is virtually impossible for all stocks in the ETF to go bankrupt.
Besides, a good mix of long term and short term investments is also recommended.
4. Monitor well
“How much time are you willing and be able to spend on monitoring your investment?” This is a question that Sim challenges you to think about. Ask yourself how much time should be involved in monitoring.
“See if it is possible to automate the trade with minimal human monitoring. Certainly you do not want to spend your entire day glued to the computer screen.”
5. Know your exit strategy
Always decide on an exit strategy before you execute a trade. “You either exit based on a specific time frame or you exit based on your loss and profit percentage,” Sim suggests.
6. To win, control your emotions
While medieval medicine honours the “four humours” of Sanguine, Choleric, Phlegmatic and Melancholy; the investment world also sees four dangerous emotions which include Greed, Fear, Hope and Faith.
“The art of trading involves managing emotions,” Sim said. “Very often, this is about understanding ourselves because our emotions make us question if certain trade methods work or not.”
7. The more you trade, the less you earn
Being a very successful trader himself, Sim agreed that the more trade you take, the more risk you have.
“It is always wise not to overinvest when a person has no proven trading method and is not managing his emotions. It is better to do less trade and only focus on a high probability set up than to take a risky trade.”
He then quoted Mirriam Macwilliams, the chief trainer at Wealth Mentors, as an example. In just nine months, she undertook 55 trading options and turned US$10,000 into US$139,000!
“Remember the purpose of trading is not to take trades but to make money. Holding cash is also taking a position,” Sim warned
8. Protect your Capital
Every single trade carries a risk element. Stop Loss order would be a good tool to preserve your capital especially as it limits an investor’s loss on a stock position. Sim explained, ”This is especially useful when you are placing new trade.”
9. Leverage your portfolio with options
Savvy investors use options as income generator by applying proper money management. “By trading options, one can have nice returns by leveraging their small capital with the ability to control a large number of shares at a fraction of the cost of the stock,” Sim disclosed.
“This is a ‘limited’ reward and risk strategy which allows traders to profit in either a sidway or trending market.”
10. Investment education
The best way to learn about the stock market is to learn from an expert. Sim said, “Investment education may be expensive but you only pay once. Ignorance is truly expensive because you pay forever.”
He added, “We have a lot of busy professionals who want to create another source of income. Our step-by-step approach also saves them from costly mistakes.”
Investment education is truly about understanding how the market works. Wealth Mentors has taught over 5,000 people in Asia and Hong Kong how to trade profitably in the stock market.
This month, Sim is offering free, two-hour, content-rich seminars in Hong Kong. If you are interested to know more about his unique low-risk trading system. All level of investors are welcome, especially beginners.
For free seminar reservation, call 03 80627796 or register online at www.Wealth-Mentors.com
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