Often times trading can become very exciting. There can be times you want to go around bragging that you made $1,000 today, you may get high off of your trading profits. But remember, it is impossible to get a high off of trading and make money trading at the same time. You can do one or the other.
That is because trading requires a large amount of self discipline. You must be able to trade without having a huge amount of emotion attached to your trading. You can’t be thinking, “I’ve got to make a profit today because…” the market doesn’t work that way.
Even for a short term trader the stock market is still a long term strategy. The difference is, if you are a short term trader you have to rely on the long term outlook. You may lose a little here or win some there, but in all you should be heading up, in the long term.
Taking the emotions out of trading means you have to be able to follow your system without getting a high when you are making money or getting depressed when you are losing money. The ideal way to trade is like a robot, buying stocks when they give you a buy signal and selling them when they give you a sell signal.
If at any time you wonder whether you should sell your stock to accept your losses or weather you should get out and keep your gains, you are trading wrong. A robot does not wonder or think it simply follow the rules already in place. And if you want to be a great trader you must be disciplined enough to follow your rules.
In order for you to trade like a robot you need to do 3 things.
1. Develop a set of rules that you use to determine when to enter or exit a trade. Every trade you take should follow your rules.
2. Test your rules by back testing and paper trading. This is the best way to figure out if your rules will work in the long term.
3. Follow your rules. Never hesitate to buy when your rules tell you or sell when your rules tell you.
These three steps allow you to make money in the markets and allow you to trade unemotionally.
For more information about the stock market visit http://www.stocks-simplified.com
Sunday, December 14, 2008
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.
For more information about the stock market visit http://www.stocks-simplified.com
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.
For more information about the stock market visit http://www.stocks-simplified.com
Monday, December 8, 2008
Take Complete Responsability When Trading
All successful traders will take complete responsibility for their trading actions. You will not find a successful trader who blames others for losing their money in the stock market. This is the first step to becoming a great trader.
This step is very important because until you take responsibility for your trading, both profits and losses, you will not feel comfortable enough to place trades yourself and follow your own rules, which is necessary if you want to make money in the stock market.
Even more important a trader who takes responsibility for their actions will be more likely to consider their mistakes learning experiences. If you hold yourself responsible for losing a trade you will be more likely to review bad trades and figure out what you did wrong. From that you can learn how, not to make the same mistakes again.
People who blame their brokers for giving them bad advice, or their friends for giving them the wring hot stock pick, do not have that luxury. They may never find out what they did wrong. As a result they are likely to keep making the same mistake over and over again without understanding why they can’t seem to make money in the stock market.
Taking responsibility can also help you when developing your trading strategy. If you try to trade everyone else’s strategy it may work against you as you try to make their strategies work for you. The only way you can make money is by developing a strategy that you feel comfortable about and if you trade based on others opinions you may not feel comfortable with it and make mistakes such as exiting to early or holding on too long.
In the end the most important thing you can do is to take responsibility for your own trades. If you don’t you are just counting on lady luck to come and save the day. And if you have ever gambled you will find that is a terrible long term
strategy.
For more information visit http://www.stocks-simplified.com
This step is very important because until you take responsibility for your trading, both profits and losses, you will not feel comfortable enough to place trades yourself and follow your own rules, which is necessary if you want to make money in the stock market.
Even more important a trader who takes responsibility for their actions will be more likely to consider their mistakes learning experiences. If you hold yourself responsible for losing a trade you will be more likely to review bad trades and figure out what you did wrong. From that you can learn how, not to make the same mistakes again.
People who blame their brokers for giving them bad advice, or their friends for giving them the wring hot stock pick, do not have that luxury. They may never find out what they did wrong. As a result they are likely to keep making the same mistake over and over again without understanding why they can’t seem to make money in the stock market.
Taking responsibility can also help you when developing your trading strategy. If you try to trade everyone else’s strategy it may work against you as you try to make their strategies work for you. The only way you can make money is by developing a strategy that you feel comfortable about and if you trade based on others opinions you may not feel comfortable with it and make mistakes such as exiting to early or holding on too long.
In the end the most important thing you can do is to take responsibility for your own trades. If you don’t you are just counting on lady luck to come and save the day. And if you have ever gambled you will find that is a terrible long term
strategy.
For more information visit http://www.stocks-simplified.com
Sunday, December 7, 2008
Holding Cash When Trading
Holding cash when trading, those are the words the majority of traders fear. No one wants to do it, but it can actually be a benefit to you.
Two of the biggest stock market geniuses of all time, Warren Buffet and Jessie Livermore have always gone through long periods of holding cash. They only buy when there are positions out there worth buying, and when everything seems to be going in the right direction.
This is directly opposite to what most new traders will do. They feel the need to be fully invested in the market at all times, after all if they are not fully invested they are losing potential profit. This type of thinking can be a downfall.
Remember that the stock market can be a double edged sword. You can make a large amount of cash during the good times but you can lose a large amount of cash during bad times.
Your first goal should be to protect your losses. The best way to do that is to hold cash when you are unsure of the markets. Waiting for the markets to make up their mind instead of trying to trade a bad market will help you to preserve your capitol.
Another reason why holding cash can be a good idea is that it is less stressful and allows you to take a break. When the markets are constantly moving up 500 points then down 500 points during the same day you probably want to take a breather until the markets make a decision.
Wait it out and take a break. Forget about the markets for a while, at least until they start trending. If you trade too much during hard times you will be too stressed out to make a profit during a trending market, and you will probably make less money in the long run as well.
For more information about the stock market visit http://www.stocks-simplified.com
Two of the biggest stock market geniuses of all time, Warren Buffet and Jessie Livermore have always gone through long periods of holding cash. They only buy when there are positions out there worth buying, and when everything seems to be going in the right direction.
This is directly opposite to what most new traders will do. They feel the need to be fully invested in the market at all times, after all if they are not fully invested they are losing potential profit. This type of thinking can be a downfall.
Remember that the stock market can be a double edged sword. You can make a large amount of cash during the good times but you can lose a large amount of cash during bad times.
Your first goal should be to protect your losses. The best way to do that is to hold cash when you are unsure of the markets. Waiting for the markets to make up their mind instead of trying to trade a bad market will help you to preserve your capitol.
Another reason why holding cash can be a good idea is that it is less stressful and allows you to take a break. When the markets are constantly moving up 500 points then down 500 points during the same day you probably want to take a breather until the markets make a decision.
Wait it out and take a break. Forget about the markets for a while, at least until they start trending. If you trade too much during hard times you will be too stressed out to make a profit during a trending market, and you will probably make less money in the long run as well.
For more information about the stock market visit http://www.stocks-simplified.com
Friday, December 5, 2008
Readjusting trend lines
Drawing a trend line is just like connecting the dots. By drawing a line at the highs of a stock you get a resistance level. By drawing a line at the lows of a stock you get a support level.
The theory is that stocks will bounce up from support and bounce down from resistance. Also when a stock breaks a trend line is it likely to stock will have a big run in the same direction it broke.
Drawing a trend line and using them to trade is much more of an art then a science. As such they may need to be constantly readjusted as stocks take on new behaviors. Stocks may break above levels of resistance only for a short time then fall all the way back to support.
In which case, it is better to take the new high into consideration when redrawing your resistance level. Another example would be in an up trending stock, where the stock has just made a fast rally which leaves all your trend lines in the dust and makes them obsolete. In which case, your trend line will have to be drawn again to incorporate the new price action.
One thing you do not want to do is adjust your trend line so you can lower your stops. If you buy a stock at support hoping it will go to resistance and it breaks support get out. Do not adjust your support to make it appear as if support is lower now. Getting out quickly when you are wrong can help you in the long run.
Trend lines can be the single most important indicator when deciding when to get into and out of a stock. So it is important to make sure they are as accurate as possible. That means you have to be willing to readjust trend lines every once in a while, and keep them updated.
For more information about the stock market visit http://www.stocks-simplified.com
The theory is that stocks will bounce up from support and bounce down from resistance. Also when a stock breaks a trend line is it likely to stock will have a big run in the same direction it broke.
Drawing a trend line and using them to trade is much more of an art then a science. As such they may need to be constantly readjusted as stocks take on new behaviors. Stocks may break above levels of resistance only for a short time then fall all the way back to support.
In which case, it is better to take the new high into consideration when redrawing your resistance level. Another example would be in an up trending stock, where the stock has just made a fast rally which leaves all your trend lines in the dust and makes them obsolete. In which case, your trend line will have to be drawn again to incorporate the new price action.
One thing you do not want to do is adjust your trend line so you can lower your stops. If you buy a stock at support hoping it will go to resistance and it breaks support get out. Do not adjust your support to make it appear as if support is lower now. Getting out quickly when you are wrong can help you in the long run.
Trend lines can be the single most important indicator when deciding when to get into and out of a stock. So it is important to make sure they are as accurate as possible. That means you have to be willing to readjust trend lines every once in a while, and keep them updated.
For more information about the stock market visit http://www.stocks-simplified.com
Thursday, December 4, 2008
Myths About Short Term Trading
There are many myths about short term trading these are the “text book” stereotype. The myths are often wrong or based off of bad assumptions.
These myths are
1. Speculators don’t make money when the markets go down. No, unlike long term investors who get hurt by such things as market crashes short term traders can take full advantage of downturns in the market by buying puts or shorting the stock. I never understood where this myth came from considering most if not all short term traders do not mind playing the downside.
2. Short term trading is risky. Anytime you put your money in the market you are taking a risk, regardless of time frame. Some people seem to have forgotten that buy and hold or investing in big named companies is not always a for sure thing.
3. Speculators can’t beat the market. It is very possible to make between 20-100% annual returns, sometimes more, in the market as a short term speculator. If that isn’t beating the market we do live in a perfect world.
4. Speculators can make money in the short run, but investors will make money in the long run. This comes from the belief that long term traders have that they will make money in the long run if they buy strong value companies. While this has been shown to work in the past you can’t assume just because it works, it works better then trading. Pulling out relatively consistent small gains adds up.
5. Short Term Traders sit at their computers all day and watch the market. This is false, if you are a position trader you do not want to spend more then 5-20 minutes a day (after hours) monitoring your positions, any more is just stressful and not worth it. If you are a day trader you probably want to spend more time, like 30-90 minutes, but the same thing goes here. Sitting at your computer all day is just plan stressful.
For more information about the stock market visit http://www.stocks-simplified.com
These myths are
1. Speculators don’t make money when the markets go down. No, unlike long term investors who get hurt by such things as market crashes short term traders can take full advantage of downturns in the market by buying puts or shorting the stock. I never understood where this myth came from considering most if not all short term traders do not mind playing the downside.
2. Short term trading is risky. Anytime you put your money in the market you are taking a risk, regardless of time frame. Some people seem to have forgotten that buy and hold or investing in big named companies is not always a for sure thing.
3. Speculators can’t beat the market. It is very possible to make between 20-100% annual returns, sometimes more, in the market as a short term speculator. If that isn’t beating the market we do live in a perfect world.
4. Speculators can make money in the short run, but investors will make money in the long run. This comes from the belief that long term traders have that they will make money in the long run if they buy strong value companies. While this has been shown to work in the past you can’t assume just because it works, it works better then trading. Pulling out relatively consistent small gains adds up.
5. Short Term Traders sit at their computers all day and watch the market. This is false, if you are a position trader you do not want to spend more then 5-20 minutes a day (after hours) monitoring your positions, any more is just stressful and not worth it. If you are a day trader you probably want to spend more time, like 30-90 minutes, but the same thing goes here. Sitting at your computer all day is just plan stressful.
For more information about the stock market visit http://www.stocks-simplified.com
Wednesday, December 3, 2008
Why The Stock market was born
I thought it might be fun to talk about how the stock market was born. Many people do not realize the importance of the stock market.
The stock market was born out of necessity. It helps companies grow as well as helps the average citizen fight against inflation.
Imagine you are a business owner. You own a restaurant that is making $100,000 a year in net profit. It works out great but you want it to grow, you can’t afford the $500,000 it cost to open up another restaurant. Suddenly you get an idea.
You will sell shares of your company to other individuals and profit from those shares. In return the investors who buy the shares will own a percentage of the company and a percentage of the income produced by the company.
You figure your company is worth $2,000,000 because with a $100,000 income that is 5% annual profit, many people would be willing to take that. You then divide this into 10,000 shares and sell each one for $200.
You can now sell enough shares to open up a couple more restaurants, and as long as you keep at least 51% of the company you control the company.
This deal also lets individuals beat inflation. By buying $200 shares of this company they can make approximately 5% on their money through their share of the earnings. They are also able to benefit as the company grows because the value of their shares will increase.
But what if the investors wanted to sell their shares and cash out with their profits? It can be hard to find buyers when you need them. Because of this the stock market exchange was created.
It is here that investors, traders, and money management companies can buy and sell stock. It is like a supermarket where you can find many shares of companies to buy or short. And this is the stock market as we know it today.
For more information about the stock market visit http://www.stocks-simplified.com
The stock market was born out of necessity. It helps companies grow as well as helps the average citizen fight against inflation.
Imagine you are a business owner. You own a restaurant that is making $100,000 a year in net profit. It works out great but you want it to grow, you can’t afford the $500,000 it cost to open up another restaurant. Suddenly you get an idea.
You will sell shares of your company to other individuals and profit from those shares. In return the investors who buy the shares will own a percentage of the company and a percentage of the income produced by the company.
You figure your company is worth $2,000,000 because with a $100,000 income that is 5% annual profit, many people would be willing to take that. You then divide this into 10,000 shares and sell each one for $200.
You can now sell enough shares to open up a couple more restaurants, and as long as you keep at least 51% of the company you control the company.
This deal also lets individuals beat inflation. By buying $200 shares of this company they can make approximately 5% on their money through their share of the earnings. They are also able to benefit as the company grows because the value of their shares will increase.
But what if the investors wanted to sell their shares and cash out with their profits? It can be hard to find buyers when you need them. Because of this the stock market exchange was created.
It is here that investors, traders, and money management companies can buy and sell stock. It is like a supermarket where you can find many shares of companies to buy or short. And this is the stock market as we know it today.
For more information about the stock market visit http://www.stocks-simplified.com
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