Monday, October 20, 2008

Focus on the trading Process

Focusing on the trading process can help you become more profitable when trading. It has many advantages then focusing on your profit.

Focusing on your profit can actually hurt your trading account. It makes it harder to make rational decisions and is what separates the professional trader from the average Joe. When you focus on your profits and losses you can make bad decisions.

It can cause you to exit a trade far too early. Once you make a profit, especially a large profit it is tempting to exit early. This leads you to exit for a $100 profit when you would have actually made you $1000 if you had followed your rules. I have made these mistakes many times, everyone does. That is one of the dangers of looking at your profit and losses while you are in a trade.

Another reason why focusing on your profits and losses can be bad is it can cause you to stay in a bad trade for too long. In which case you to hold onto the trades and try and turn a loss into a profit. The idea behind this is “You don’t lose money until you sell”.

The bad part about that is it actually works against you. Stocks tend to trend, if a stock starts to turn against you if can fall for a very long time causing you to hold onto the stock for years hoping that you will eventually break even.

What you should be doing instead of focusing on your profits and losses, is focus on your game plan. It is much better to concentrate on how you are going to open or close a position. Develop your own rules to trading, when will you get in, when will you get out.

Developing a strategy and sticking with it can cause you to be much more profitable in the stock market then you could have imagined.

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