You guessed it right, this is a “Zen” piece. Good and bad trades don’t happen. The good ones are found and cultivated. The Bad ones … well, you see success is nothing more than a few simple disciplines, practised every day; while failure is simply a few errors in judgement, repeated every day (Jim Rohn).
Up to 75-80% of traders are, generally, make more losses than profits. With such low success rates, stock trading might be among the more risky professions around. But, the 20%+ that do make money consistently, seem to follow the same mental chain of thoughts and we thought it might be interesting to illustrate some of those thoughts here for the benefits of our readers. So here goes:
The overarching theme of good trading habits is the lack of emotions. The less emotional you are, the more successfully you are able to apply your mind. When you put your mind to trading you tend to ask more questions, in fact! Some things that may come to your mind when you ask questions, could be:
- Does this signal indicate a long or short position?
- How is the market, as a whole?
- How big a position should I take? What can I afford?
- Are more people talking about my stock now, than earlier?
- Is the market sentiment changing? Which way?
One way to keep emotions from ebbing and flowing now and then is to create well defined boundaries such as: investing no more than 2% of your account into a single trade, set an upper limit on margins and be sure about the size of each position you can take. These should help you stay dispassionate while trading.
A couple of important mistakes to avoid
Not having a trading process. When you don’t have a process, you tend to either over-react or not react at all when your indicators are giving you certain signals. In other words, instead of trusting your indicators (which you might have carefully devised or subscribed to) you end up making gut decisions.
Not exiting a trade at the right time. Theoretically, there’s no right time to exit a trade when the price is going up and there’s no wrong time to exit when it’s going down. Right? Well, only partly! Limiting your gains and letting your losses run is also something strong, confident, traders follow. They are able to do it based on their understanding of company fundamentals (a function of research) and their grasp on what various trader conversations are indicating.
- Develop a checklist of scenarios and questions you need to plan for.
- Keep learning. New data and decision-making parameters emerge very frequently.
- Document your past key trades (both good and bad) and revisit them from time to time.
- Avoid distractions!
Do let us know if any/all of these suggestions were helpful.
Hey and do signup for the upcoming Stockal app that will take care of all your information needs when it comes to deciding which trades to get in and out of. Early signups ensure you get free upgrades forever! It will also give you a full free year of subscription to trending stocks, social chatter, analysis from thousands of analysts and insider trade alerts (real time). Just drop your email address here.