Today I will resume with a list of trading rules vital to the trading and investing decision-making process.

Rule No. 6

Don’t overdo diversifying your portfolio. Diversification is one of the ways to minimize risk, but if you open up too many positions in different markets the losing investments may diminish the profitable ones.

The proper balance exists if there is negative correlation between the positions traded. For instance, concentrating all your trades only in the banking sector or solely the cement sector would not good idea since stocks belonging to the same sector trend in the same direction.

Rule No. 7

For any trades other than intra-day trades, make decisions away from the market. I cannot stress enough the importance of this rule. During market hours, a person goes through different kinds of emotions and subjective decision-making takes precedence over objective rational decision-making.

Making decisions away from the market allows you to go back to your original trading plan and make evaluations in relation to that plan. This will save you from making a decision you may regret later.

Rule No. 8

If your success depends on good execution, do not trade.

This rule is very applicable to the Saudi stock market, because all dealing is still limited to banks and 90 percent of the people use Internet banking for trading. It sometimes get hectic out there, and either you will not be able to get a buy or sell order executed, or you can not get the right quote price. If you run into the above situation a lot, do not start with intra-day trading requiring quick executions.

You should be 100-percent certain that you will get your orders executed in a timely manner. You can either be one of the privileged traders or have your own trading room facilitated by a bank, or you can have access to someone who has direct access to a private customer service representative and trade through him/her.

Rule No. 9

Always keep records of your trades.

For every trade you make, always keep a written record of the time, day, price and number of shares traded, and compare your record with your bank statement. Mistakes happen, and if you do not keep record you will have no way of verifying the statement you receive.

Rule No. 10

Always analyze your mistakes; by analyzing your mistakes you can focus on what went wrong.

Mistakes and failures are the best teachers; by honestly identifying the reason for making the mistake, your chances of making it again are much less.

Usually mistakes are deducted from fear of being wrong or feeling embarrassed. To conquer fear you must analyze mistakes.

Rule No. 11

Be an investor in the early stages of a bull market and a speculator in the latter stages of bull markets.

People who have initiated long positions at the latter stages of the Saudi bull market prior to February 2006 have suffered tremendous losses; they have made the mistake of investing at the end of a bull market.

Others who were lucky to have closed their positions prior to the crash have more than doubled their capital.

Rule No. 12

Always follow the rules.

For any rule there is always a way to break it, and every time you break a rule you are usually finding a way to lose money.