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Raise Your Trading Profits As Well As Decrease Your Losses
Are You Interested In Increased Profits? Then Focus On Decreased Losses!
Allow me to share 4 RULES for trading which directly address losses and if followed, can 'plug' many of your profit leaks!
RULE 1. Wait for the stock to CONFIRM the anticipated direction just before entering the trade.
This rule can decrease the NUMBER of losses you encounter. As straightforward as that sounds, it is one of the most frequently violated principles of good trading habits. So often is this rule broken that we are all familiar with cute little descriptions such as "catching a falling piano", and even "reaching for a falling knife."
What you use for this confirmation is your own decision; price rise or fall, momentum, number of trades or bid / ask "size" are simply just a couple of ways. Personally I combine them all (more or less), developing a 'feeling' about the confirmation, rather than a measurable quantity.
Nonetheless you choose to define confirmation, let experience be your most effective teacher here. Don't enter the trade until you are absolutely convinced the stock is shifting your direction!
RULE 2. When you are filled on the entry, place a STOP loss to minimize your potential for loss.
This rule controls the Amount you could lose on any one trade. I like to use about half of the stocks day-to-day movement for my stop loss amount. As an example, if a stock price moves on average, say one dollar every trading day, then I'll back off 1/2 of that, or 50 cents and place my stop loss there. This restricts the losses possibly incurred on that trade.
Whatever you decide to use, be FAITHFUL in staying with the protection offered by the stop. In other words, Do not CHANGE IT. If you're stopped, you're stopped. He who trades and runs away lives to trade another day!
Equally necessary is allowing your profits to improve AT THE Very Same TIME! Here's tips on how to do that.
RULE 3. Whenever you become profitable in a trade, replace the stop loss with a TRAILING stop, trailing by that amount of profit.
This one is so important that I think it should be the twenty second amendment to our Constitution! Say you are up twenty-five cents in a trade and you've got your stop loss in at 50 cents below your entry.
Replace the stop loss with a 25 cent trailing stop. At this point, you WORST CASE result for the trade is BREAK EVEN (give or take a couple of pennies)!!! On my live trading lab on my internet site, I typically refer to this as the MAGIC point during the trade. You have virtually NOTHING to lose and EVERYTHING to gain from that point on !
Finally, for the 'do-it-yourself- investors:
RULE 4. Leave the trade alone from this point on!
If you're in doubt, seek the advice of an investment professional on easy methods to successfully raise capital. All you have to do is search: public shell or reverse merger.
The market overall will do a much better job of managing the trade than you or I EVER could! Once you have reached the MAGIC POINT in your trade, just go away and go do something else. Your trade is certainly on autopilot!
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