Leave Your Ego Out of Stock Trading - Focus on Price Action
The amateur will constantly look at the P&L and take profits too early or cut their losses too late. If he or she is a longer term trader, he or she will flinch at intra-day fluctuations and ultimately take profits at the lows and losses when they are at their highs.
Focus on chart action not your P&L.
For technical traders, it is important to focus on charts action and what they are showing versus how much your stock is up or down at any point in time. The markets don't care when you entered a position. In fact, you are down the minute you enter a position just based on commissions. This means you're entry most likely isn't the most precise, which means you have to give it breathing room or what we call a "stop". Should you focus on P&L, you might exit a trade prematurely when the charts are merely suggesting a mild pullback.
There is a lot of noise in the markets during the day that ultimately gets resolved at the end of the day. If you are a longer term trader, consider exiting a position if the price hits your stop at the end of the day. Evidently, if the markets are as volatile as they have been in the past weeks, you should tighten your stops and exit when they are hit.
Focus on playing the game right.
Stock trading is a long-term game. Of course your goal is to make money, but it is also your goal to preserve capital. You can't make money if you don't put money at risk, but you can't trade if you don't have capital. If you focus on creating a sound trading plan and trade according to that plan, it is only a matter of time before you are profitable.
Easy come easy go.
You've read the stories about people doubling or tripling their money, but you will also notice that those who do not have a sound trading plan eventually lose their money just as fast. Stock trading is not about trying to hit the home run every time. Like in golf, stock trading is about making birdies and pars most of the time. Occasionally you might have an eagle, but you most certainly want to limit your bogeys and double bogeys.
Labels: Finances, Pro Stock Trading Tips