Reacting to the market is a lesson every trader should learn. It is much simpler and much more profitable then to just react to the market then to try to understand it.
Too many traders try to explain a big move. For instance most people will say that stocks fell because of the unemployment numbers that just came out, or the interest rates that were announced or some other important news factor that came out today.
And they may be right, there could be hundreds of reasons why the market falls on any given day, but is it really worth it to find out. In most cases the answer is no.
Stocks fall because of panic, more sellers than buyers. Stocks shoot up because of greed, more buyers than sellers. Many times it can actually help you to weed out all the noise that comes from Wall Street and make decisions based on what you see.
If you are a technical trader that is what you should do. Don’t concern yourself with the fact that everyone says we are in the worst depression since whenever. Concentrate on the basics, is the market up trending? Is it down trending? Has it broken support? Any Chart patterns forming?
The basics will help you to stay calm and look at the market with a clear mind rather than looking at it with hundreds of news reports running through your head. Perhaps the most important reason for just reacting to the market is that it helps to eliminate bias.
You can listen to the news and hear all the reasons why a given stock is going to go up. The problem is when it comes time to see how the stock is actually performing you will have a bias to the upside. Even if the stock is in a strong downtrend you can always find some news out there that can justify buying it.
But justifying your buying isn’t always enough. If a stock is clearly trending down and breaking through support there is no reason for you to buy it. In fact you may even want to short it.
Basically it does not help you to try to explain or rationalize things by looking at the short term news reports. It can help you much more to weed all the useless junk out and concentrate on your own specific trading rules.
For more information about the stock market visit http://www.stocks-simplified.com
Tuesday, October 21, 2008
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.
For more information about the stock market visit http://www.stocks-simplified.com
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.
For more information about the stock market visit http://www.stocks-simplified.com
Thursday, October 9, 2008
Critical trading account levels
Crossing critical trading account levels are never easy. It is emotionally draining to cross below a critical trading account level and it is the best feeling in the world to cross above one.
What I mean by critical levels are levels at which you feel are important. For instance you finally make it over the $100,000. It felt great. The only problem is now you do not want to trade anymore, why? Because you are afraid of your account going below $100,000.
These levels can make you stop trading or get out of your trades too early just so you can stay above them. Because of this they can be one of the biggest psychological hurdles to overcome. And even the best of traders will have a problem with it.
That is why you should not count your money while you are in a trade. Kenny Rogers once said “You never count your money when you’re sitting on the table.” That is as true in the stock market as it is with anything else. So how can you avoid counting your money?
1. Hide your balance. Some brokers allow you to hide your balance when you are in your account. It is definitely beneficial to block out the number so you will not be able to see it, and therefore you will not use your account balance to make exiting decisions.
2. Check your account 5 minutes a day. Checking your account balance for only 5 minutes a day can help you stay calm and let you keep your sanity. If you are constantly checking your account balance you will undoubtedly make decisions based solely on how much money you have.
3. Take trading breaks. If you trade too much you will be burnt out mentally. Taking a break here and there help you to come back fully recharged and able to better decisions.
For more information about the stock market visit http://www.stocks-simplified.com
What I mean by critical levels are levels at which you feel are important. For instance you finally make it over the $100,000. It felt great. The only problem is now you do not want to trade anymore, why? Because you are afraid of your account going below $100,000.
These levels can make you stop trading or get out of your trades too early just so you can stay above them. Because of this they can be one of the biggest psychological hurdles to overcome. And even the best of traders will have a problem with it.
That is why you should not count your money while you are in a trade. Kenny Rogers once said “You never count your money when you’re sitting on the table.” That is as true in the stock market as it is with anything else. So how can you avoid counting your money?
1. Hide your balance. Some brokers allow you to hide your balance when you are in your account. It is definitely beneficial to block out the number so you will not be able to see it, and therefore you will not use your account balance to make exiting decisions.
2. Check your account 5 minutes a day. Checking your account balance for only 5 minutes a day can help you stay calm and let you keep your sanity. If you are constantly checking your account balance you will undoubtedly make decisions based solely on how much money you have.
3. Take trading breaks. If you trade too much you will be burnt out mentally. Taking a break here and there help you to come back fully recharged and able to better decisions.
For more information about the stock market visit http://www.stocks-simplified.com
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.
For more information about the stock market visit http://www.stocks-simplified.com
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.
For more information about the stock market visit http://www.stocks-simplified.com
Tuesday, August 19, 2008
Researching stock trades
It is important to keep track of stock market events when trading. If you do not you may often encounter sudden suppresses.
The first thing you want to be aware of is the federal meetings. Every now and then the feds cut or raise interest rates. This can have a big impact on the movement of the market. Stocks may rally on the news of an interest rate cut and fall on news of an increase in the interest rate. This due to the fact that lower interest rates help businesses and aid growth, higher interest rates can hurt growth.
Another thing you may want to keep an eye out for is earnings announcements. If a company has good earnings there stock is likely to go up. If they have bad earnings there stock is likely to go down. Predicting earnings can be risky, it can be a good idea to stay away from a stock announcing its earnings.
You may also want to check on the company itself to make sure that it is a good company. Every time I place a trade I take a quick look at the company itself to see how they are doing. You do not want to buy a stock that is going to go bankrupt tomorrow.
Finally you always want to check out the technicals of a given stock before you buy it. Is it up trending? Forming any chart patterns or candlestick patterns? That can be very important in deciding which way to trade the stock, or if to trade the stock at all. Checking the trend of the industry group and overall market may be helpful as well.
There is a lot of homework to be done for every trade. Just remember not to overdo it. While it is important to put the odds in your favor, you need to pull the trigger if you want to make money. You can’t wait until everything is perfectly aligned before you act.
For more information about the stock market visit http://www.stocks-simplified.com
The first thing you want to be aware of is the federal meetings. Every now and then the feds cut or raise interest rates. This can have a big impact on the movement of the market. Stocks may rally on the news of an interest rate cut and fall on news of an increase in the interest rate. This due to the fact that lower interest rates help businesses and aid growth, higher interest rates can hurt growth.
Another thing you may want to keep an eye out for is earnings announcements. If a company has good earnings there stock is likely to go up. If they have bad earnings there stock is likely to go down. Predicting earnings can be risky, it can be a good idea to stay away from a stock announcing its earnings.
You may also want to check on the company itself to make sure that it is a good company. Every time I place a trade I take a quick look at the company itself to see how they are doing. You do not want to buy a stock that is going to go bankrupt tomorrow.
Finally you always want to check out the technicals of a given stock before you buy it. Is it up trending? Forming any chart patterns or candlestick patterns? That can be very important in deciding which way to trade the stock, or if to trade the stock at all. Checking the trend of the industry group and overall market may be helpful as well.
There is a lot of homework to be done for every trade. Just remember not to overdo it. While it is important to put the odds in your favor, you need to pull the trigger if you want to make money. You can’t wait until everything is perfectly aligned before you act.
For more information about the stock market visit http://www.stocks-simplified.com
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.
For more information about the stock market visit http://www.stocks-simplified.com
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.
For more information about the stock market visit http://www.stocks-simplified.com
Sunday, August 17, 2008
Using stops VS not using stops
There is a lot of debate out there on the use of stop order. Some people believe that stop orders get you out too early while others say that the loss prevention it provides far outweighs the possibility of getting out to early.
I believe that every trade should have a stop loss order on it. This is especially true when you factor in such things like a market crash. Now I know no one likes to think of the market as crashing. I have even heard people talk as if market crashes were unusual things. No they happen every couple years, it is a natural part of the market and you must be prepared for them.
I have seen strong up trending stocks fall 15% or 20% in one day. In these cases it would be much better to place a stop order and only lose say 5% then to not and have a 20% loss (and if the market gaps down that loss can be even higher).
Stop orders are designed for capital preservation. If you let your trades run wild you can end up losing a huge chunk of your account. Remember when trading capitol preservation always comes first.
You can ride an up trending stock all the way up as long as it doesn’t hit your stop. If it hits your stop you’re out. It does not matter if you believe that this stock is going to keep heading up, you simply cannot afford to let the stock pull back and take away your profits, or even put you in the red.
Most traders will put there stop below the trend line or below the moving average. If you are shorting you may want to put your stop above the trend line or above the moving average. The important thing is that you have an exit planed on all trades.
For more information about the stock market visit http://www.stocks-simplified.com
I believe that every trade should have a stop loss order on it. This is especially true when you factor in such things like a market crash. Now I know no one likes to think of the market as crashing. I have even heard people talk as if market crashes were unusual things. No they happen every couple years, it is a natural part of the market and you must be prepared for them.
I have seen strong up trending stocks fall 15% or 20% in one day. In these cases it would be much better to place a stop order and only lose say 5% then to not and have a 20% loss (and if the market gaps down that loss can be even higher).
Stop orders are designed for capital preservation. If you let your trades run wild you can end up losing a huge chunk of your account. Remember when trading capitol preservation always comes first.
You can ride an up trending stock all the way up as long as it doesn’t hit your stop. If it hits your stop you’re out. It does not matter if you believe that this stock is going to keep heading up, you simply cannot afford to let the stock pull back and take away your profits, or even put you in the red.
Most traders will put there stop below the trend line or below the moving average. If you are shorting you may want to put your stop above the trend line or above the moving average. The important thing is that you have an exit planed on all trades.
For more information about the stock market visit http://www.stocks-simplified.com
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