Having been trading stocks and choices in the capital markets professionally for many years, I have actually seen lots of ups and downs. I have actually seen paupers end up being millionaires over night … And I have actually seen millionaires end up being paupers over night … One story told to me by my coach is still engraved in my mind: ” Once, there were two Wall Street stock market multi-millionaires. Both were extremely effective and chose to share their insights with others by selling their stock market forecasts in newsletters. His good friends were naturally delighted about what the two masters had to say about the stock market’s direction. - is a ideal example.
The point of this illustration is that it was the trader who was wrong. In today’s stock and option market, people can have different opinions of future market direction and still earnings. The distinctions lay in the stock picking or choices technique and in the mental attitude and discipline one uses in executing that technique. I share here the fundamental stock and option trading concepts I follow. By holding these concepts strongly in your mind, they will assist you regularly to profitability. These concepts will help you reduce your danger and enable you to evaluate both what you are doing right and what you may be doing wrong. You may have checked out ideas similar to these before. I and others use them since they work. And if you memorize and reflect on these concepts, your mind can use them to assist you in your stock and choices trading.
CONCEPT 1. SIMPLICITY IS MASTERY. When you feel that the stock and choices trading method that you are following is too complicated even for easy understanding, it is probably not the best. In all aspects of effective stock and choices trading, the simplest methods frequently emerge triumphant. In the heat of a trade, it is simple for our brains to end up being emotionally overloaded.
CONCEPT 2. NOBODY IS OBJECTIVE ENOUGH. If you feel that you have outright control over your emotions and can be objective in the heat of a stock or choices trade, you are either a harmful types or you are an inexperienced trader. No trader can be absolutely objective, especially when market action is unusual or wildly erratic. Just like the perfect storm can still shake the nerves of the most seasoned sailors, the perfect stock exchange storm can still unnerve and sink a trader extremely quickly. Therefore, one must endeavor to automate as lots of vital aspects of your technique as possible, especially your profit-taking and stop-loss points.
CONCEPT 3. HANG ON TO YOUR GAINS AND CUT YOUR LOSSES. This is the most crucial concept. Most stock and choices traders do the opposite … They hang on to their losses way too long and enjoy their equity sink and sink and sink, or they get out of their gains too soon just to see the cost increase and up and up. In time, their gains never cover their losses. This concept takes some time to master correctly. Reflect upon this concept and review your past stock and choices trades. If you have actually been unrestrained, you will see its fact.
CONCEPT 4. HESITATE TO LOSE MONEY. Are you like most beginners who can’t wait to jump right into the stock and choices market with your money wishing to trade as soon as possible? On this point, I have actually found that most unprincipled traders are more afraid of losing out on “the next huge trade” than they are afraid of losing money! The key here is STICK TO YOUR STRATEGY! Take stock and choices trades when your technique signals to do so and avoid taking trades when the conditions are not fulfilled. Exit trades when your technique says to do so and leave them alone when the exit conditions are not in place. The point here is to be afraid to discard your money since you traded unnecessarily and without following your stock and choices technique.
CONCEPT 5. YOUR NEXT TRADE COULD BE A LOSING TRADE. Do you absolutely think that your next stock or choices trade is going to be such a huge winner that you break your own money management rules and put in whatever you have? Do you remember what normally takes place after that? It isn’t quite, is it? No matter how positive you may be when getting in a trade, the stock and choices market has a method of doing the unexpected. Constantly stick to your portfolio management system. Do not intensify your anticipated wins since you may wind up compounding your extremely real losses.
CONCEPT 6. GAUGE YOUR EMOTIONAL CAPACITY BEFORE INCREASING CAPITAL OUTLAY. You understand by now how different paper trading and real stock and choices trading is, do not you? In the very same method, after you get used to trading real money regularly, you discover it extremely different when you increase your capital by 10 fold, do not you? What, then, is the distinction? The distinction remains in the emotional problem that includes the possibility of losing increasingly more real money. This takes place when you cross from paper trading to real trading and also when you increase your capital after some successes. After a while, most traders understand their maximum capability in both dollars and emotion. Are you comfy trading approximately a couple of thousand or 10s of thousands or numerous thousands? Know your capability before committing the funds.
CONCEPT 7. YOU ARE A NOVICE AT EVERY TRADE. Ever seemed like a professional after a couple of wins and after that lose a lot on the next stock or choices trade? Overconfidence and the incorrect sense of invincibility based upon past wins is a recipe for catastrophe. All experts appreciate their next trade and go through all the correct steps of their stock or choices technique before entry. Deal with every trade as the first trade you have actually ever made in your life. Never ever deviate from your stock or choices technique. Never ever.
CONCEPT 8. YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE. Ever followed an effective stock or choices technique just to stop working terribly? You are the one who determines whether a strategy prospers or fails. Your personality and your discipline make or break the technique that you use not vice versa. Like Robert Kiyosaki says, “The financier is the property or the liability, not the investment.”. Comprehending yourself first will result in ultimate success.
CONCEPT 9. CONSISTENCY. Have you ever altered your mind about how to execute a strategy? When you make changes day after day, you wind up catching nothing but the wind. Stock market variations have more variables than can be mathematically developed. By following a tested technique, we are assured that somebody effective has actually stacked the chances in our favour.
When you review both winning and losing trades, determine whether the entry, management, and exit fulfilled every requirements in the technique and whether you have actually followed it specifically before altering anything. In conclusion … I hope these easy guidelines that have actually led my ship out of the harshest of seas and into the best harvests of my life will assist you too. Good Luck.