If you are serious about making and keeping money by trading stocks, then there are three things you need to do, and do well.
Money management
Money management comes first. Without a rock-solid method of managing your trading funds, you trading results will be only be fair at best. Money management is more than just knowing how much money you have tied up in a trade. It's a method of using the right portion of your trading account on any one trade relative to the perceived risk and reward.
There are a few things to consider to managing a trade successfully:
Account size
Your account size determines how long you stay in the trading game. If you are skillful, then you will not require a large account. On the other hand, even if you are a new trader, you can use a small account as long as you control your risk.
Controlling the risk means never using more money then you need on any one trade. A very simple formula for stock market success is to risk less than 3% of your total account value on a single trade.
If you have a $10,000 account, this means you never lose more than $300 per trade. If your account drops to $9,000, then you risk less than $270.
As your account grows, while the total amount at risk increases, you still only risk a maximum of 3% of your account. Say your account is at $12,000, then your maximum amount at risk is $360.
In theory, this ensures that you never go broke! And that is of utmost importance.
Profitable
If your system is profitable, then you will typically win more money then you lose. While some consider the percentage of winners relative to the number of losers, nothing could be further from the truth.
It doesn't do you any good to have a system that wins on nine out of very ten trades if you give all of your gains back on the one loser. More important is that the winners overwhelm the losers.
A profitable trading system might have a third of the trades result in the maximum loss planned for, a third of the trades either make or lose a little money, and a third of the trades bring in the profits.
Risk
It's worth repeating, risk no more than 3% of your total account value on any one trade. If you keep this in mind, you are ensured of minimizing losses to your account. At what price you enter a stock and where you place your initial stop price are used to determine how many shares you trade.
Profit
The profit potential of a system is the "edge". If you can estimate how much money you *might* make over time, and if that profit comes from many trades over time, then you probably have a winning system.
A trading system will either have a profit target that determines when to enter AND exit (good) or it will tell you when to enter and keep you in a profitable trade as long as possible without giving back much, or any, gains (better).
Orders
No matter what trading pattern you use to enter a stock, you will make the most money by using the correct orders.
When you wait until a stock has proven it's intensions - typically by trading above the previous day's high for a buy, or below the previous day's low for a sell short - then having an order in place that captures that exact price is crucial.
Let's say your favorite trading pattern signals a buy for. If you are an end of day trader, then the next morning you watch the opening price for the stock. If the stock opens less then yesterday's high, you place a stop order to buy above the previous day's high. Even better is to include a limit price with that buy stop order.
How much above the previous day's high is your call. As long as it is greater than the previous day's high, you are making the stock prove that it is going up.
Sure, you give up some of the profit potential. But you are more likely to turn a profit with a stock that is moving in your favor.
Once you are in a position, then you need to protect yourself from loss. If your method of picking stocks is good, then it's unlikely that the stock will revisit the current prices. Continuing with the buy example, to protect your account from a catostrophic loss, place a good-till-cancel sell stop order below the recent low. If yesterday's low is lower then the current day's low, that's where the sell stop order goes.
And make certain that the order does not include a limit. Stocks can and do gap down. Expecting that you will have a sell order filled at your stop price is a quick way to the poor house.
Trading system
Your choice of what method to enter and exit stocks plays a critical part in your stock market sucess.
A great trading system looks for low risk opportunities to enter a stock. Knowing at exactly what price signal to enter and when to exit - even if it is for a small loss - will keep your account growing. As long as you consistently follow the rules layed out by a well designed trading plan, you can count on steadily growing your trading account.
My favorite trading pattern does a great job of identifying stock likely to move rapidly in your favor.
There is no reason to be trading stocks that are not ready to deliver the biggest gains in the least amount of time.
If you are serious about taking your stock trading to a higher level, then read about this trading pattern.
Regards,
Dave
About The Author
Dave Wooding is NOT a registered investment advisor, nor does he suggest you trade with money you can't afford to lose. Instead, he offers practical swing trading pattern information at http://www.trading-pattern.com that comes from years of trading experience.
housekeepers near Park Ridge ..Exchange Traded Funds (ETFs) are a group of passive index... Read More
The ABC's of Stock Trading SuccessStock trading success...why is it... Read More
Intervention. Now don't let that big word scare you. The... Read More
Forget making a profit; instead focus on the income provided... Read More
Just about everything you have been told about Social Security... Read More
This is an extract of an article which was first... Read More
When you invest in the stock market for ever-increasing cash... Read More
To become a successful trader you must have some kind... Read More
On November 17 I bought 7 different mutual funds and... Read More
Duck! No I don't mean a quack, quack. I meant... Read More
For years investors have been taught to look into the... Read More
Reduce your investing and stock market risks by:Setting your sights... Read More
Peter is a professional trader, Paul is not. Peter has... Read More
Well, not really. What I mean is I don't mind... Read More
You should ignore analysts on TV, the radio, the newspaper... Read More
So you're started trading, you bought some positions with your... Read More
Hello Inflation, it has been awhile, I see you on... Read More
You probably know the story of Sherlock Holmes and the... Read More
After the publication of the first part of this two... Read More
With the internet such a huge part of our daily... Read More
With over 6,000 mutual funds available, it may be tempting... Read More
I feel that an investment strategy in the stock market... Read More
There is so much involved in developing peak performance, that... Read More
Today's society gives special recognition to alcoholics, sexaholics, binge-aholics, shopaholics,... Read More
Let's hope you did not have any of the Enron... Read More
scheduled cleaning services Mundelein ..If you have been dealing with mutual funds for any... Read More
Intervention. Now don't let that big word scare you. The... Read More
On Monday, November 25, 2000 Investor's Business Daily listed on... Read More
Mutual funds and brokers are always preaching not to buy... Read More
There are red lights, green lights, blue lights and spot... Read More
I made my very first investment in the stock market... Read More
Robert Rodriguez likes to buy stocks at their lows. When... Read More
The ABC's of Stock Trading SuccessStock trading success...why is it... Read More
If you are a baby boomer, time is not on... Read More
The following are a list of nine things you want... Read More
A colleague of mine just returned from a scuba diving... Read More
For years I have been saying you must have a... Read More
I often hear from people, "I don't trade. I invest.... Read More
I have been trading for several decades and was an... Read More
Mutual funds were moderately successful in creating a presence in... Read More
One of the great truisms of Wall Street is "Don't... Read More
There are many important things you need to know to... Read More
When the stock market is going up and all your... Read More
Every Wall Street analyst, financial planner and broker will tell... Read More
You'd have had to be living on a desert island... Read More
When you invest in the stock market for ever-increasing cash... Read More
On the 40 year journey through the turmoil of a... Read More
When you stand on the ocean shore and watch the... Read More
I know there are a lot of you out there... Read More
There is nothing more exciting than finding an undervalued stock... Read More
Stocks & Mutual Fund |