Develop your Own System
To trade successfully, you will need your own trading system. The techniques described in this module and in the rest of this book are your box of tricks, but you should select from them to build it. Once you have your system in place, fine-tune it. Do not abandon it to suit particular trading circumstances, or it will not function as a system at all.

What works for one trader may not for another. Some trade within hours, others within weeks, days or hours. Some study fundamentals, and others -although they are fewer than the software promoters would have you believe - follow the charts. Many follow news flow, instinct and the crowd, or jump on the bandwagon of guru-led activity or director trades.

Use Limit Orders
On Day 3, I said I would tell you today why you should use limit orders, so here we go. When you buy shares, you can place a market order, which means that you will buy at the market price, but it can change rapidly, and you may find yourself paying more than you had expected.
If you instead set a limit order, you will control what you pay. If the order is not fulfilled at the price that you have specified, it is cancelled. Hey, you are in charge. This is the route that the professional traders take.

When you sell shares, you could also place a sell limit order, so specifying the lowest price that you will accept for your shares. I advise against it. I have known traders place one sell limit order after another, but they do not sell because the share price keeps falling too fast to enable the successive limits to be applied.
As a seller, place a market order. The deal will be completed faster, even if the price is not always ideal. The benefit of this is to free up your capital to trade elsewhere without delay.
Self-discipline and Proportion
When a stock has risen to a comfortable profit level, you will want to hold on to the shares to make more money. Conversely, when a share is falling, you will also want to hold on in the hope of a reversal. In both cases, you should usually do the opposite.
Some traders invest a very high proportion of their available capital on one trade. This is a mistake because even the most likely winning trade can go wrong. As a trader, do not make the mistake of getting attached to the stock. It should be nothing to you except an instrument for trading.
You should not buy so many stocks that you cannot keep an eye on them properly. This is a practical issue, separate from the investment case surrounding diversification. The great US trader Jesse Livermore would buy only leading stocks in leading industries. If these stocks should weaken, it was a sign that other stocks could follow suit. On this basis he called the great stock market crash of 1929.

Protect your trading capital
Trade only with capital you can afford to lose. Perhaps, as trading guru Toni Turner has recommended online, traders should shout to themselves throughout the trading day: ‘Protect my principal.’ The message has added resonance once you are approaching the heady heights of retirement age. Do not then trade with your life savings. As renowned US trader Ed Seycota has said, ‘There are old traders and there are bold traders, but there are very few old, bold traders.’

Review your Mistakes
Expect to lose money sometimes as a trader. In the November 1997 issue of Technically Speaking, the newsletter of the Market Technicians Association, US trading guru Dr Van K Sharp wrote an article: ‘Why it’s so difficult for most people to make money on the market’. He argued: ‘Most of us grew up exposed to an educational system that brainwashes us with the idea that you have to get 94%-95% correct to be excellent. . . . Mistakes are severely punished in the school system by ridicule and poor grades, yet it is only through mistakes that human beings learn.’

Let us keep this in perspective. As trader Robert P Rotella said in The Elements of Successful Trading (New York Institute of Finance): ‘Losing money when you begin trading is the price paid in learning how to trade and enter the business. But do not be misled into thinking the higher the tuition paid, the better the education.’

The great traders have always reviewed their losing trades, and tried to learn where they went wrong. Gerald Loeb would write down the reasons for making a trade before he entered it, and it made his retrospective analysis easier.

Be Professional
Some traders treat share trading more like a hobby than a job but they are competing against professionals. As a trader you need to commit your time and energy to watching the markets properly, and applying proven rules. US trader Jesse Livermore considered stock speculation a full-time job that required a full-time focus. Bernard Baruch, another trader of genius, took a similar view.