The point of this illustration is that it was the trader who was wrong. In today`s stock and option market, people can have different opinions of future market direction and still earnings. The distinctions lay in the stock selecting or alternatives strategy and in the mental attitude and discipline one uses in carrying out that technique.
I share here the fundamental stock and alternative trading principles I follow. By holding these concepts firmly in your mind, they will assist you consistently to profitability. These concepts will help you decrease your threat and permit you to assess both what you are doing right and what you may be doing wrong.
You might have read ideas similar to these prior to. I and others utilize them since they work. And if you memorize and assess these principles, your mind can use them to direct you in your stock and alternatives trading.
PRINCIPLE 1.
SIMPLENESS IS MASTERY.
I picked this up from Wendy Kirkland, When you feel that the stock and alternatives trading technique that you are following is too intricate even for simple understanding, it is probably not the best.
In all elements of effective stock and alternatives trading, the simplest approaches typically emerge victorious. In the heat of a trade, it is easy for our brains to end up being emotionally strained. If we have a complex method, we can not keep up with the action. Easier is better.
CONCEPT 2.
NOBODY IS OBJECTIVE ENOUGH.
If you feel that you have absolute control over your emotions and can be unbiased in the heat of a stock or options trade, you are either a hazardous types or you are an inexperienced trader.
No trader can be definitely objective, specifically when market action is unusual or extremely erratic. Similar to the ideal storm can still shake the nerves of the most skilled sailors, the best stock exchange storm can still unnerve and sink a trader extremely rapidly. For that reason, one must strive to automate as numerous important aspects of your strategy as possible, specifically your profit-taking and stop-loss points.
PRINCIPLE 3.
HANG 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 enjoy their equity sink and sink and sink, or they leave their gains too soon just to see the price increase and up and up. Over time, their gains never ever cover their losses.
This concept takes time to master properly. Reflect upon this principle and examine your previous stock and alternatives trades. If you have been undisciplined, you will see its truth.
CONCEPT 4.
BE AFRAID TO LOSE MONEY.
Are you like most novices who can`t wait to leap right into the stock and choices market with your cash intending to trade as soon as possible?
On this point, I have discovered that most unprincipled traders are more afraid of losing out on “the next huge trade” than they hesitate of losing cash! The secret here is ADHERE TO YOUR METHOD! 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 cash due to the fact that you traded needlessly and without following your stock and options 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 huge winner that you break your own money management guidelines and put in whatever you have? Do you remember what usually happens after that? It isn`t pretty, is it?
No matter how positive you may be when getting in a trade, the stock and choices market has a way of doing the unforeseen. Therefore, constantly stay with your portfolio management system. Do not compound your expected wins due to the fact that you might wind up intensifying your very genuine losses.
CONCEPT 6.
GAUGE YOUR PSYCHOLOGICAL CAPABILITY PRIOR TO INCREASING CAPITAL OUTLAY.
You understand by now how different paper trading and genuine stock and alternatives trading is, don`t you?
In the very same way, after you get used to trading real cash consistently, you discover it incredibly different when you increase your capital by 10 fold, don`t you?
What, then, is the difference? The difference remains in the psychological problem that features the possibility of losing a growing number of real cash. This occurs when you cross from paper trading to genuine trading and also when you increase your capital after some successes.
After a while, most traders realize their optimal capability in both dollars and emotion. Are you comfy trading approximately a couple of thousand or 10s of thousands or numerous thousands? Know your capacity prior to committing the funds.
CONCEPT 7.
YOU ARE A NOVICE AT EVERY TRADE.
Ever felt like a professional after a couple of wins and then lose a lot on the next stock or options trade?
Overconfidence and the incorrect sense of invincibility based on previous wins is a dish for disaster. All specialists respect their next trade and go through all the appropriate actions of their stock or options strategy before entry. Deal with every trade as the very first trade you have ever made in your life. Never deviate from your stock or choices strategy. Never ever.
PRINCIPLE 8.
YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE.
Ever followed a successful stock or alternatives technique just to stop working badly?
You are the one who figures out whether a method is successful or fails. Your character and your discipline make or break the technique that you utilize not vice versa. Like Robert Kiyosaki says, “The financier is the property or the liability, not the financial investment.”
Understanding yourself initially will lead to ultimate success.