Wednesday, December 10, 2008

Finding the perfect trading set up

Some people try to find the perfect trading set up. They only trade when all the stars are aligned and when everything that can possible be on their side is on their side.

It is so easy to want to find the perfect set up, the set up that can’t fail. Where all we have to do is click to buy and we have won. Unfortunately, the perfect set up never comes in the stock market. You can spend every waking moment looking for the perfect stock to buy, one that has great fundamental, great technicals, and has gave a buy signal on every oscillator, you will never find it.

Every trade no matter how good it looks has risk involved. Instead of looking for the perfect set up, Develop a system, that works in the long run. It doesn’t matter if you lose money here and there as long as you keep those losses small and keep your winners big.

Finding a stock that is strong is all you can do. Nicolas Darvas wrote a book back in the 1950s, called How I made $2,000,000 in the stock market. In it he states, “I slowly came to see that though I was becoming a diagnostician I could not be a prophet. When I examined a stock and found it strong, all I could say was ‘it is healthy now, today, at this hour.’ I could not guarantee it would not catch a cold tomorrow.”

That is all you can do. You never know what is going to happen. All you can do is find a trade that seems to be strong at one point in time and limit your losses in case you are wrong. But you have to be able to jump into a stock that looks good and ride it until it doesn’t look good anymore.

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