Wednesday, December 17, 2008

Changing your trading rules

Changing your trading rules can be a good approach if your rules aren’t working. But if they are there is no need to change them just because you have a few bad trades.

You have been good, following your trading rules and having some success. But you start to notice some flaws in your approach. You will from time to time enter trades where you lose money and are forced to exit.

You also see other opportunities that you have missed because they did not give you an entry signal. This makes you upset. You now want to remake your rules one that would have allowed you to get into those opportunities. You also make new rules that will not allow you to get into the losing trades.

If this sounds like you, be careful. Every system has its share of winning trades and losing trades. You cannot just go dumping your rules and trying to create new rules every time you see a missed opportunity. This is especially true if you are having success following your current rules.

Remember your goal in trading is to win on average. You may lose a few small trades here and there but you should also be winning a few big trades here and there as well. If you are winning don’t try to change it.

I always hear people say I wish I would have bought Microsoft when it started. I would be a millionaire by now. My response to that is why would you have bought Microsoft then? Did it give off any buy or sell rules at that time? Or would you of simply put your life savings into a stock no one knew too much about and hope for the best.

Rather than looking at opportunities you have missed and saying I should have gotten into that, how about developing a system that works in the long run and following that system.

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