Having actually been trading stocks and choices in the capital markets professionally over the years, I have seen many ups and downs. I have seen paupers end up being millionaires over night … And I have seen millionaires end up being paupers over night … One story told to me by my mentor is still engraved in my mind: ” Once, there were 2 Wall Street stock market multi-millionaires. Both were exceptionally effective and chose to share their insights with others by selling their stock market forecasts in newsletters. Each charged US$ 10,000 for their opinions. One trader was so curious to know their views that he spent all of his $20,000 cost savings to buy both their opinions. His good friends were naturally delighted about what the two masters had to say about the stock market’s direction. When they asked their buddy, he was fuming mad. Confused, they asked their buddy about his anger. He said, ‘One said BULLISH and the other said BEARISH!'”. The point of this illustration is that it was the trader who was wrong. In today’s stock and choice market, people can have various opinions of future market direction and still revenue.
The distinctions lay in the stock picking or choices technique and in the mental attitude and discipline one utilizes in implementing that technique. I share here the standard stock and choice trading concepts I follow. By holding these concepts securely in your mind, they will direct you consistently to success. These concepts will assist you reduce your threat and allow you to examine both what you are doing right and what you might be doing wrong. You might have read concepts comparable to these prior to. I and others use them due to the fact that they work. And if you memorize and reflect on these concepts, your mind can use them to direct you in your stock and choices trading.
PRINCIPLE 1. SIMPLICITY IS PROFICIENCY. Wendy Kirkland I picked this up from Wendy Kirkland Trading, When you feel that the stock and choices trading technique that you are following is too complicated even for simple understanding, it is most likely not the best. In all elements of effective stock and choices trading, the easiest methods frequently emerge victorious. In the heat of a trade, it is simple for our brains to end up being mentally overloaded. If we have a complex technique, we can not keep up with the action. Simpler is much better.
PRINCIPLE 2. NO ONE IS GOAL ENOUGH. If you feel that you have outright control over your feelings and can be unbiased in the heat of a stock or choices trade, you are either a hazardous species or you are an unskilled trader. No trader can be absolutely unbiased, especially when market action is unusual or hugely erratic. Similar to the best storm can still shake the nerves of the most skilled sailors, the best stock market storm can still unnerve and sink a trader extremely rapidly. Therefore, one must strive to automate as many important elements of your technique as possible, especially your profit-taking and stop-loss points.
PRINCIPLE 3. HOLD ON TO YOUR GAINS AND CUT YOUR LOSSES. This is the most essential concept. Most stock and choices traders do the opposite … They hang on to their losses way too long and enjoy their equity sink and sink and sink, or they get out of their gains prematurely just to see the rate increase and up and up. Over time, their gains never cover their losses. This concept requires time to master correctly. Reflect upon this concept and examine your past stock and choices trades. If you have been unrestrained, you will see its truth.
PRINCIPLE 4. BE AFRAID TO LOSE MONEY. Are you like the majority of beginners who can’t wait to leap right into the stock and choices market with your cash wishing to trade as soon as possible? On this point, I have found that the majority of unprincipled traders are more scared of missing out on “the next huge trade” than they hesitate of losing cash! The secret here is ADHERE TO YOUR METHOD! Take stock and choices trades when your technique signals to do so and avoid taking trades when the conditions are not fulfilled. Exit trades when your technique states to do so and leave them alone when the exit conditions are not in place. The point here is to be scared to throw away your cash due to the fact that you traded needlessly and without following your stock and choices technique.
PRINCIPLE 5. YOUR NEXT TRADE COULD BE A LOSING TRADE. Do you absolutely think that your next stock or choices trade is going to be such a big winner that you break your own money management guidelines and put in everything you have? Do you remember what typically takes place after that? It isn’t pretty, is it? No matter how positive you might be when getting in a trade, the stock and choices market has a way of doing the unforeseen. Therefore, always stick to your portfolio management system. Do not compound your awaited wins due to the fact that you might end up intensifying your extremely real losses.
PRINCIPLE 6. DETERMINE YOUR PSYCHOLOGICAL CAPACITY PRIOR TO INCREASING CAPITAL OUTLAY. You know by now how various paper trading and real stock and choices trading is, do not you? In the very same method, after you get used to trading real cash consistently, you find it exceptionally various when you increase your capital by ten fold, do not you? What, then, is the distinction? The distinction is in the psychological concern that comes with the possibility of losing a growing number of real cash. This takes place when you cross from paper trading to real trading and likewise when you increase your capital after some successes. After a while, the majority of traders recognize their optimal capability in both dollars and feeling. Are you comfy trading as much as a few thousand or tens of thousands or hundreds of thousands? Know your capability prior to dedicating the funds.
PRINCIPLE 7. YOU ARE An AMATEUR AT EVERY TRADE. Ever felt like an expert after a few wins and after that lose a lot on the next stock or choices trade? Overconfidence and the incorrect sense of invincibility based on past wins is a recipe for disaster. All professionals respect their next trade and go through all the appropriate actions of their stock or choices technique prior to entry. Deal with every trade as the very first trade you have ever made in your life. Never deviate from your stock or choices technique. Never.
PRINCIPLE 8. YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE. Ever followed a successful stock or choices technique just to fail severely? You are the one who determines whether a technique is successful or stops working. Your personality and your discipline make or break the technique that you use not vice versa. Like Robert Kiyosaki states, “The financier is the possession or the liability, not the investment.”. Understanding yourself first will lead to eventual success.
PRINCIPLE 9. CONSISTENCY. Have you ever altered your mind about how to carry out a technique? When you make changes day after day, you end up catching nothing but the wind. Stock market fluctuations have more variables than can be mathematically developed. By following a tested technique, we are ensured that someone effective has actually stacked the chances in our favour. When you examine both winning and losing trades, determine whether the entry, management, and exit fulfilled every requirements in the technique and whether you have followed it specifically prior to altering anything.
In conclusion … I hope these simple guidelines that have led my ship of the harshest of seas and into the best harvests of my life will direct you too. Best of luck.