Monday, August 18, 2008

The Do Not Trade List

Most traders keep a watch list, but it is beneficial to keep a do not trade list as well. This is a list that is simply a list of stocks to watch out for. These stocks you want to do your best to stay away from and not trade.

When I was first trading, I would back test and paper trade new systems, which I continue to do. One thing I would notice is that my systems would work extremely well when I was trading some stocks but would work terrible on other stocks.

This is true regardless of how you trade. It makes sense. People move stocks. Every person has a different personality, and most traders have a few stocks that they prefer to trade. Therefore every stock behaves slightly different.

Even though all stocks follow the basic rules of technical and fundamental analysis the way in which they follow those rules vary from stock to stock. In short everyone has a different personality and that is true with stocks as well.

Just like you do not get along with some people you will not get along with some stocks. They may not behave in the way that you may want or expect them too. Of course that can be frustrating.

This is why keeping a do not trade list is very important. If you find that a certain stock is not giving you good results while others are you may want to make a note of it and stop trading that stock. But remember you can’t tell whether a stock doesn’t like your trading method based on one trade. You can only tell after a series of trades.

Keeping a list of stocks that do not agree with you can save you thousands of dollars in trading losses. It is well worth it.

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