Tuesday, July 1, 2008

Trading well vs. trading to make money

Trading well and trading to make money are two completely different things. In fact trading well can make you more money in the stock market then by trading to make money. Even though this is the case the majority of new traders trade for money.

They do this and lose money, not understanding why. Well, of course you lose money. If you are in the markets for the sole purpose of making money you will always have fear and greed to deal with.

Greed can make you stay into a trade too long. It can make a great profit turn into a great loss and has happened to many people many times. Fear on the other hand might make you get out of a good trade too soon. This is where you get out of an awesome trade because you get scared that it will turn against you.

Obviously this type of trading can be very dangerous and runs on emotion. There is a better way to trade. It is trading just for the purpose of trading well. Now I don’t mean trading randomly just because you can. I mean developing a system testing it out and following it through.

The system should have strict rules that you create in order to more efficiently make money. It should be tested before you actually trade with it.

This way you develop a system that works in the long term. It may have both wins and losses but in the long term it makes money. Once you have a great system then you can follow the buy and sell signals.

This is true regardless of how the price has changed. If you bought a stock at $55 and it fell to $53 and did not hit your sell point you will not get out if you are trading well. After all it can still go up. Concentrating on making your system work will make you a lot more money then concentrating on making money.

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