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Successful Traders and Investors Do This First
Successful traders and investors have a game plan and watch list that accounts for stop losses, targets and observations gleaned from doing their homework ahead of time. Professional traders start by asking what is the downside of a position in this asset. They don’t start by imagining riches and wealth on every trade.
By comparison, most new traders see investing and trading as an ATM. They see trading as a way to profit from the markets. While you can and will make money trading, you must understand every entry is a 50/50 proposition. You have an equal probability of a stock moving higher as it does moving lower. Homework and strategy help to weigh the scale in our favor. But, if your only concern is money that can be made, break the habit before it becomes a problem.
Start by asking, how much can I lose if I am wrong?
Here is a simple cheat sheet that helps visualize what it takes to get back to even, once a loss is incurred.
It is much easier to exit a trade with a 5% loss. It only takes a 5.3% gain to get back to even.
SPY – Starting Downtrend?
SPY appears to be changing character. The cycle has become to turn down after 4 weeks of gains to start the year. And, earnings beats are being sold, where last quarter, the opposite was the case. Note current version of this chart is at the bottom of this post.
With the markets changing character, it becomes more important than ever to manage your risk. This is why we have been taking profits in common shares and using the profits to trade options on a case by case basis. We are effectively reducing our risk.
February and March are seasonally some of the strongest months of the year, so waiting to see if institutions agree can make all the difference in a winning our losing month(s).
Finally, consistency comes with using the same strategies and rules every day. Stops are part of that strategy and so are the Three Steps to Winning Stock Trades discussed herein.
If you’d like to trade with a professional trader with over 30 years of investing and trading experience and like that we do it LIVE during market hours, give us a shout at TheClosingPrint.
Happy Trading and good luck,
Revised: Added the current chart. The cycle will most likely turn in the other direction now.
All of the sector “cycles” look like XLF, below, giving signs they are ready to turn higher. While price action is ahead of the curve, we would anticipate some consolidation of the 4 day old move since Friday. Anticipating is part of the game, but “Price is King. So, if they make this a “V-shape” recovery, trade price, not your opinion. Fibonacci levels are only a guide, not the holy grail.
Disclaimer: Do your Own Research
Our content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find on our Website and wish to rely upon, whether for the purpose of making an investment decision or otherwise.
We would like to draw your attention to the following important investment warnings. The value of shares and investments and the income derived from them can go down as well as up; Investors may not get back the amount they invested – losing one’s shirt is a real risk; past performance is not a guide to future performance.