Having actually been trading stocks and alternatives in the capital markets professionally throughout the years, I have seen lots of ups and downs. I have seen paupers become millionaires over night … And I have seen millionaires become paupers over night … One story informed to me by my coach is still engraved in my mind: ” Once, there were 2 Wall Street stock market multi-millionaires. Both were extremely effective and chose to share their insights with others by selling their stock market projections in newsletters. His pals were naturally thrilled about what the 2 masters had to state about the stock market`s instructions. Option Trading in Your Spare Time - by Wendy Kirkland & Virginia McCullough (Paperback) is a ideal example.
The point of this illustration is that it was the trader who was wrong. In today`s stock and option market, people can have various opinions of future market instructions and still profit. The distinctions lay in the stock picking or alternatives method and in the mental attitude and discipline one utilizes in implementing that method. I share here the fundamental stock and option trading principles I follow. By holding these principles firmly in your mind, they will guide you consistently to success.
These principles will help you decrease your threat and enable you to evaluate both what you are doing right and what you might be doing wrong. You might have read ideas similar to these before. I and others use them because they work. And if you remember and reflect on these principles, your mind can use them to guide you in your stock and alternatives trading.
CONCEPT 1. SIMPLENESS IS MASTERY. When you feel that the stock and alternatives trading technique that you are following is too intricate even for basic understanding, it is probably not the best. In all elements of effective stock and alternatives trading, the simplest techniques typically emerge victorious. In the heat of a trade, it is easy for our brains to become mentally overloaded.
CONCEPT 2. NO ONE IS OBJECTIVE ENOUGH. If you feel that you have outright control over your emotions and can be unbiased in the heat of a stock or alternatives trade, you are either a dangerous types or you are an unskilled trader. No trader can be definitely unbiased, particularly when market action is unusual or extremely erratic. Just like the perfect storm can still shake the nerves of the most seasoned sailors, the perfect stock exchange storm can still unnerve and sink a trader really quickly. For that reason, one should strive to automate as lots of critical elements of your method as possible, particularly your profit-taking and stop-loss points.
CONCEPT 3. HOLD ON TO YOUR GAINS AND CUT YOUR LOSSES. This is the most important principle. Many stock and alternatives traders do the opposite … They hold on to their losses way too long and watch their equity sink and sink and sink, or they get out of their gains prematurely only to see the price go up and up and up. Gradually, their gains never ever cover their losses. This principle takes some time to master appropriately. Contemplate this principle and evaluate your previous stock and alternatives trades. If you have been undisciplined, you will see its fact.
CONCEPT 4. BE AFRAID TO LOSE MONEY. Are you like the majority of beginners who can`t wait to jump right into the stock and alternatives market with your money hoping to trade as soon as possible? On this point, I have discovered that the majority of unprincipled traders are more afraid of losing out on “the next big trade” than they hesitate of losing money! The key here is STICK TO YOUR STRATEGY! Take stock and alternatives trades when your method signals to do so and avoid taking trades when the conditions are not fulfilled. Exit trades when your method states to do so and leave them alone when the exit conditions are not in place. The point here is to be afraid to discard your money because you traded unnecessarily and without following your stock and alternatives method.
CONCEPT 5. YOUR NEXT TRADE COULD BE A LOSING TRADE. Do you definitely believe that your next stock or alternatives trade is going to be such a big winner that you break your own money management rules and put in everything you have? Do you remember what generally takes place after that? It isn`t quite, is it? No matter how confident you might be when getting in a trade, the stock and alternatives market has a way of doing the unanticipated. For that reason, always stick to your portfolio management system. Do not intensify your expected wins because you might end up intensifying your really genuine losses.
CONCEPT 6. ASSESS YOUR EMOTIONAL CAPACITY BEFORE INCREASING CAPITAL OUTLAY. You understand by now how various paper trading and genuine stock and alternatives trading is, do not you? In the very same method, after you get utilized to trading genuine money consistently, you discover it extremely various when you increase your capital by 10 fold, do not you? What, then, is the difference? The difference remains in the psychological problem that features the possibility of losing increasingly more genuine money. This takes place when you cross from paper trading to genuine trading and also when you increase your capital after some successes. After a while, the majority of traders understand their optimal capacity in both dollars and feeling. Are you comfortable trading approximately a couple of thousand or 10s of thousands or numerous thousands? Know your capacity before dedicating the funds.
CONCEPT 7. YOU ARE A NOVICE AT EVERY TRADE. Ever seemed like a professional after a couple of wins and then lose a lot on the next stock or alternatives trade? All experts respect their next trade and go through all the correct steps of their stock or alternatives method before entry. Never deviate from your stock or alternatives method.
CONCEPT 8. YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE. Ever followed a successful stock or alternatives method only to fail badly? You are the one who figures out whether a strategy is successful or fails. Your personality and your discipline make or break the method that you use not vice versa. Like Robert Kiyosaki states, “The financier is the property or the liability, not the investment.”. Comprehending yourself initially will result in ultimate success.
CONCEPT 9. CONSISTENCY. Have you ever changed your mind about how to carry out a strategy? When you make changes day after day, you end up catching nothing but the wind. Stock exchange changes have more variables than can be mathematically formulated. By following a tested method, we are ensured that someone effective has stacked the chances in our favour. When you evaluate both winning and losing trades, determine whether the entry, management, and exit fulfilled every requirements in the method and whether you have followed it specifically before altering anything.
In conclusion … I hope these basic standards that have led my ship of the harshest of seas and into the best harvests of my life will guide you too. Good Luck.