Wednesday, August 20, 2008

Trading many different positions

Trading many different positions can benefit you greatly. There are a number of reasons why trading many positions at a time can be helpful.

1. It decreases dependency on any one trade. If you have multiple trades open at one time you are not depending that one trade is going to work out. While having one trade can potentially give you higher rewards it can also give you a higher risk and be more stressful if the trade turns against you.

2. It lightens surprises. If one stock gaps in the wrong direction that can be hard for your trading account. But if you have 5 other trades going at the same time the loss you experience can be covered up by your other trades.

3. Trading multiple positions allows you to cover both directions in the market. If you have a bullish trade and the market crashes you will probably lose money on that trade. However if you have a few bearish trades as well as bullish trades the money you make from the bearish trades during a crash can offset the money you would lose from bullish trades. Having multiple trades open can be useful for protection.

4. It gives you less stress. If you only have one position open and it does not do what you expect it to it can be stressful. Getting frustrated is not only a bad feeling but it can work against you in the stock market. If you are stressed you will most likely make bad decisions, (or at least not the best decisions). Now if you have multiple positions open you will not feel so stressed about one trade. That trade could turn sour and you still make money with your other positions. This allows you to make calm rational decisions and lets you sleep easier at night.

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