Most of us have learned that emotions can be a serious enemy of
successful trading. Unfortunately, all too often, trades are entered
and exited solely because of emotion. Thoughts like "if I buy XYZ, I'll
make a bundle," or "XYZ went down 50 cents today, I better get out" are
examples of entering for greed and exiting for fear without any
pre-planning or underlying discipline. I have often thought and am
personally convinced that in the short to medium term at least the
markets are ruled by the psychological rather than the logical. In my
book,
"Trade Your Way to Wealth", I place great emphasis on the need for
discipline and the need and content of a plan. It is my contention that
a trader can give himself or herself a better edge if they will follow
the old adage of "plan your trade and trade your plan." To me that
means map out the whole trade including the complete exit strategy
before you ever enter. In that way, we can lessen the emotional pull
and give ourselves a better chance.
After I sent out an alert recently, I received an email from a
subscriber who advised that the stock I was trading was on his brokers
"restricted list" that required a customer to call in and that made the
subscriber "nervous about the trade." That email raised several
important issues about trading. The first thing that jumped out for me
was that I don't believe anyone should enter a position that makes them
"nervous." When someone says he is nervous about a trade, it tells me
that emotion is already operating in high gear -- the trader is afraid
of losing and that fear is already in control. The nervousness is
easily avoided. Either don't trade, or at least don't make that
particular trade. The real question is how to remove the nervousness
from the equation. The best way, in my view, is to have an exit
strategy in place before ever entering the trade; know ahead of time
where you are going to cut your loss before you get into the position.
Every trade can lose so discipline the trade to cut the loss where you
have made the determination ahead of time.
The next issue the email raised for me is who is the subscriber
listening to and why? He was concerned because his broker had the stock
I was discussing on some list that prevented the trader from making the
trade on the internet and required him to make a phone call to place the
trade. I'm not sure that the simple fact of having to make the call and
talking to a live broker was the problem for this fellow or whether it
was because he perceived some other negative from the requirement. One
way to find out, of course, is to call and ask the broker why they have
that stock on the "must call" list. It may simply be because it was a
cheap stock. One of my brokerages requires me to enter a special PIN
when trading the real cheapies, for example.
As I pointed out to the subscriber in my response to his email,
many times analysts differ on their opinion regarding a stock. Where
several analysts are covering a stock, it is quite common to have
differing views sometimes as wide ranging as from strong buy to strong
sell and anywhere in between. There is a disagreement every time an
order is filled since the buyer expects the price to go up and the
seller doesn't. That is why it is important for the individual investor
to educate himself and make his own reasoned decision regarding entry to
or exit from any position. There is, as I have often written, no holy
grail of trading. No commentator, analyst, broker, or system is going to
be right all the time. Trading is a business that is inherently risky.
As I describe in
"Trade Your Way to Wealth", understand the risk,
exercise sound money management, be aware of reward to risk ratios, have
an exit strategy and plan your trade. If you don't do at least those
things, you have every right to be and should be nervous about all trades.
For the record, I closed the trade that made my subscriber nervous
in just 6 days and realized a before commission gain of 3%. Of course,
it isn't always that way. The key is to prevent your emotions from
ruling the trade.
You can comment on this article on my blog!
Good Trading!
Bill Kraft
Editor of $10 Trader, Option Trader and Trend Trader
"Trade Your Way to Wealth" by Bill Kraft is an Amazon.com best seller!
Mr. Kraft's past articles are posted on our website for your review.
$10 TRADER -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock.
Details Here.
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Our Option Trading Service is for conservative traders that understand leverage principles. We focus on powerful option trading strategies that place volatility and momentum in your favor. And we pride ourselves on minimizing our losses. We always know our downside potential in a trade.
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TREND TRADER -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.
Details Here.
Trading is a path to financial independence, personal freedom, and wealth. But the path is immensely challenging and only a few emerge victorious. Bill Kraft's book Trade Your Way to Wealth, an Amazon.com "best seller", shows you the path.
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52 Wins in 52 Weeks
Our Success Trading service delivers quality trading ideas for the elite investor that has the financial wherewithal and market nimbleness to profit on small moves in a stock's price. Become a member and you will be provided with email and/or PDA alerts intended to provide you with the opportunity to make many, many profitable trades.
Our Success Trading Group has closed 52 Wins in 52 Weeks and over 340 winning trades and only 9 losing trades on our Main Trade Table.
Details Here.
DIVIDEND INVESTOR -- by Eric Aafedt
Perfect for your IRA! Our Dividend Investor service focuses solely on the "best of the best" dividend paying stocks. Many of the stocks that we will be buying in our Dividend Investor service raise their dividends almost every year. Year after year! This is powerful. We buy these stocks for their powerful dividend producing income; and we will also buy these with a purpose to make capital gains as the stock increases in value.
Feel free to sign-up for a free 30-day trial. During such time you can review our Trade Table and see the type of stocks we are buying. You will also receive all the new investing alerts we send during your trial period. Again, many of the stocks that we will be buying in our Dividend Investor service raise their dividends almost every year. Year after year! This is powerful. Don't miss out on this service!
While we titled this service an "investor" service, we also believe these stocks are solid for the "trader" in you. With these stocks, we believe an exit point of 3% above the buy price is generally appropriate for traders. And, in fact, our first 53 positions have hit our 3% target subsequent to the buy alert!
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COVERED CALL SERVICE -- by the Covered Call Research Team
Details Here.
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Success Trading Group Trade the same stocks over and over. 340 trades with only 9 losses on our Main Trade Table!
Trend Trader "The Trend Is Your Friend". Utilize trends and momentum in your stock trading!
Option Trader Use the power and leverage inherent in option trading to your advantage!
$10 Trader Focusing on stocks under $10 per share!
Dividend Investor Perfect for your IRA! Quality dividend paying stocks!
Covered Calls Conservative option writing -- Allowed in your IRA!
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