A novice trader seems to have some advantage over an old timer: no pre-conceived ideas! If you have been trading for a while and it could have worked better for you it’s time to go back to the basics and review your assumptions.
The tug of war between advocates of fundamental and technical analysis has had its run – but why not use both? You don’t know how long a trade is going to take to bring the expected profit. In case you get saddled with a horse for a long trip why not make sure it has a good pedigree? We are all impatient and greedy. In case things don’t exactly pan out as expected it is comforting to know later that you did indeed do your homework on that stock and it was a sound investment then. Do it at least as a favour to yourself. As the vicissitudes of the market unfold you need the confidence that you entered a sound situation.
Beware of wild random connections. The fact that your last two successful trades involved companies whose names start with letter “C” does not warrant trading more “C” stocks. Said like that it is tantamount to superstition but you would be surprised at the weird assumptions that mess up with your head when you are greedy or fearful – always trying to rationalise and find an explanation for everything…
Operate on several planes simultaneously and correlate what you see. How does your stock behave compared to its industry? How does your stock behave compared to the index? Do the daily, weekly and monthly charts tell the same story? Are we starting a short term retracement within a long term trend? When will you decide the long term trend is over and the correction wasn’t minor at all – you missed the top of the market by 2 months(!) Then answer to that can be found by checking the support and resistance levels in each timeframe. It is also safer to build up and unload a position gradually rather than all at once. You only keep in the market the number of shares your risk tolerance will allow.
Set your parameters before you enter a trade. Decide beforehand what your stop loss order will be and your limit target order will be. If you can’t be at the computer that day for whatever reasons you can rest assured that both your profit is protected and your loss will not grow bigger.
You have heard it all before but why do you keep breaking your own rules all the time? Discipline and a cool head do not come overnight but you will be all the wiser if you stick to it.
One thing you can do is to compare your performance with an automated trading system and see how you can improve your skills. For such a system check out http://TradingPal.net
For more articles like this check out the author’s website at BrunoDeshayes.com
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