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Trading stocks is easy. Making money trading stocks - now there is the challenge!
Opening up a brokerage account, adding money into your account
and picking a stock is easy. With commissions so low, its so easy
now to buy and sell any stock you want. There is where the problem
is.
Unfortunately, any of the "how to trade stocks for dummies"
type books fail to mention.
Most trading gurus wont tell you the real secret to successful
trading. The smart traders know that its 80% psychological, and 20%
risk management. The challenge for most people is they think and
feel - and that is what motivates them to place the trade.
How many trades have you made where you bought a stock
because someone told you it was heading higher and you better buy
now before its too late? How many times have you sold a stock, only
to watch it move higher? Why did you sell that stock - was it
because you were losing money? Was it because it wasn't doing
anything? Was it because you feared you'd lose any of the gains you
just made? Those are all emotional trading decisions. You may think
you have your emotions under control - but odds are, you are like
the rest of us, and have to fight the demons every day. If you
want to make money trading, here are a few very simple things to do:
Set Up A
Stock Trading Plan
Most sites ignore the importance of a trading plan -
even those who have created ebooks on how to trade
stocks for dummies. This will help take out the emotion
of your trading. If its not in your trading plan - don't
do it. Pretty simple - but i guarantee, you will fight
it. Your trading plan should cover every decision making
aspect of your trading, including:
- market timing - what is the current trend of the market?
- stock picking - how are you picking your stocks? if the
market direction is long, how are you picking your long
positions?
- draw down - how have you addressed draw down?
- risk management - what stop loss strategy are you using? How
have you addressed position sizing? Have you addressed portfolio
stops?
 Back
Test Everything
If you are going to have confidence in your stock picks, you need to
be able to back test them. How far back can you go? If you use
software like VectorVest for example, you could go back 14 years.
That would give you some confidence in your strategy if the equity
curve is moving in a nice straight line. What if you make a tweak to
your strategy - will it still work? How do you know your tweak will
work as expected? Backtesting helps to give you the confidence
you'll need to trade your plan. Set A Schedule
Unless you are day trading, set aside 15 minutes each night to
place your trades. It shouldn't take long to determine the market
trend, the size of your positions and then to place your orders.
This removes the temptation to look at charts for any longer than
you have to. Stare at them too long and you'll start to convince
yourself that you need to trade something. Set it and forget it.
No need to worry about futures opening up lower if you're
long (means you'll get in at a lower price), because your risk
management will get you out if things don't work out. Too many
novice traders pay too much attention to the day to day changes in
the markets. One day doesn't make a trend, so quit trading like it
does. You can trade stocks - anyone can. Only the smart ones who do
their homework (ie. know how much they are going to invest,
understand how much they are prepared to lose before they exit and
know when they are getting out), will make money.
Trading stocks for a living doesn't have to be a dream - it is
possible. If you plan your trade, trading your plan is so much
easier - and profitable.
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