A Winning Approach to Trading in the Stock Market:

Many traders lose simply out of ignorance. They base their trades on hunches, news, or tips from friends, and do not define specific risk and profit objectives before placing trades.

Others have the merit of educating themselves but fall victims of their emotions. They hold on to losing positions hoping they will turn into winners and sell winners by fear of losing a small gain. They overtrade to fulfill a need for action or by fear of missing out.

The consistent winners follow a winning approach:      

They have a strategy to enter and exit trades

They use good money management 
They take consistent actions, they follow a trading plan 
They keep good records so they can review their actions 

They avoid overtrading 
They have a winning attitude 
A strategy to enter and exit trades
You need to a strategy to put the odds in your favor for each trade you take. Your  strategyshould be as objective as possible and include the following elements:
      
Entry: conditions required before you can enter a trade – may include technical analysis, fundamental analysis, or both. 
      
Initial stop loss: price at which you will close the entire position if it does not go in your favor. The risk per share is the difference between the entry price and the initial stop.
  
Initial price objective: price at which you will take some or all profits if the trade goes in your favor.
Trade management: set of rules that dictates your actions while a trade is opened. It may include trailing stops, closing position, etc.

For every action you take, the reason should be clearly described in your strategy. 

Money management rules to keep losses small
The goal of money management is to ensure your survival by avoiding risks that could take you out of business. Your money management rules should include the following:

Maximum amount at risk for each trade. The different between your entry price and your initial stop loss is your risk per share. Your maximum amount at risk for each trade determines the share size.
Maximum amount at risk for all your opened positions. 
Maximum daily and weekly amount lost before you stop trading – avoid trying to trade your way out of a hole after a loosing streaks. 
During your learning phase, your goal should be to survive, not to make money. Start with low limits and raise them as you become a consistent winner otherwise you will simply go broke faster.

 
Good record keeping
Although the process of gaining experience cannot be rushed, it can be made much more efficient by keeping good records of your actions. Good records will allow you to: Review your actions at the end of each day to make sure you followed you strategy, not your emotions. 
Learn from your losses – they cost you money, make sure you get the education in return. You should also keep a journal of your observations.
A trading plan to keep emotions out of  your decisions.
During trading hours, emotions will turn smart people into idiots. Therefore you have to avoid having to make decisions during those hours. This requires a detailed trading plan that includes your strategy and your money management rules. 
For every action you take during trading hours, the reason should not be greed or fear. The reason should be because it is in the plan. With a good plan, your task becomes one of patience and discipline.
You have to follow the plan without exception. Any valid reason for an exception – for example, correcting an oversight – should become part of the plan.

Overtrading
Sometimes the best thing to do is to do nothing. Not trading on those bad days is key to becoming a consistent winner; in some situations it is very tempting to overtrade: 
       If you trade to fulfill a need for action, to relieve boredom
       If you can’t find the proper setup but can’t wait
       If you fear you are missing out on a great trade or on a great market
       If you want to make up for losses (revenge)
       If you trade to feel like you are working instead of sitting around. Trading involves a  lot         of work other than the actual buying and selling. 
      
      You should not trade under the following conditions: 
      
       You are not following your trading plan 
       You have reached your daily or weekly maximum loss 
       You are sick or very tired
       You are very emotional (upset, pressured to make money, self-esteem destroyed) 
       You are using new tools you are not completely familiar with 
       You need time to work on your trading plans
           
A winning attitude
Losing traders look for a “sure thing”, hang on hope, and avoid accepting small losses. Their trading is based on emotions. You must treat trading as a probability game in which you do not need to know what is going to happen next in order to make money. All you need to know is that the odds are in your favor before you put a trade. 
If you believe in your edge, which is you believe that the odds in your favor for each trade you enter, then you should have no expectation other than something will happen. 
Your attitude will have a direct influence on your trading results:Take responsibility for all your actions; do not blame the market or world events.  
            
Trade to trade well and for the love of trading, not to trade often and not for the money. The money will come as a result of trading well. 
 
Do not be influenced by the opinions of others. Reach your own decisions and follow them.  
Never think that taking money from the market is easy and never assume that you know enough.
Have no particular expectation when you place a trade because you know that anything can happen. 

Do not try to guess the future; trading is a game of probabilities. 
Use your head and stay calm; do not get excited or depressed. 
Handle trading as a serious intellectual pursuit. 
Do not count how much money you have made or lost while you are in a trade – focus on trading well.

Technorati Tags: day trading, day trading courses, online trading, stock market, stock trading, swing trading, trading logs, trading software, trading systems

They have a strategy to enter and exit trades         They use good money management.          

They take consistent actions, they follow a trading.

They keep good records so they can review their actions.          

They avoid overtrading        

They have a winning attitude A strategy to enter and exit trades. You need to have a strategy to put the odds in your favor for each trade you take. Your strategyshould be as objective as possible and include the following elements:      

Entry: conditions required before you can enter a trade – may include technical analysis, fundamental analysis, or both.       

Initial stop loss: price at which you will close the entire position if it does not go in your favor. The risk per share is the difference between the entry price and the initial stop.  

Initial price objective: price at which you will take some or all profits if the trade goes in your favor.

Trade management: set of rules that dictates your actions while a trade is opened. It may include trailing stops, closing position, etc.

For every action you take, the reason should be clearly described in your strategy. 

Money management rules to keep losses smallThe goal of money management is to ensure your survival by avoiding risks that could take you out of business.

Your money management rules should include the following:

Maximum amount at risk for each trade.

The different between your entry price and your initial stop loss is your risk per share. Your maximum amount at risk for each trade determines the share size.

Maximum amount at risk for all your opened positions. Maximum daily and weekly amount lost before you stop trading – avoid trying to trade your way out of a hole after a loosing streak. 

During your learning phase, your goal should be to survive, not to make money. Start with low limits and raise them as you become a consistent winner otherwise you will simply go broke faster. 

Good record keeping.

Although the process of gaining experience cannot be rushed, it can be made much more efficient by keeping good records of your actions.

Good records will allow you to: Review your actions at the end of each day to make sure you followed you strategy, not your emotions. 

Learn from your losses – they cost you money, make sure you get the education in return. You should also keep a journal of your observations.

A trading plan to keep emotions out of  your decisions. During trading hours, emotions will turn smart people into idiots.

Therefore you have to avoid having to make decisions during those hours.

This requires a detailed trading plan that includes your strategy and your money management rules. 

For every action you take during trading hours, the reason should not be greed or fear.

The reason should be because it is in the plan. With a good plan, your task becomes one of patience and discipline.You have to follow the plan without exception.

Any valid reason for an exception – for example, correcting an oversight – should become part of the plan.OvertradingSometimes the best thing to do is to do nothing.

Not trading on those bad days is key to becoming a consistent winner; in some situations it is very tempting to overtrade:       

If you trade to fulfill a need for action, to relieve boredom.      

If you can’t find the proper setup but can’t wait.       

If you fear you are missing out on a great trade or on a great market.      

If you want to make up for losses (revenge).      

If you trade to feel like you are working instead of sitting around.

Trading involves a lot work other than the actual buying and selling.            

You should not trade under the following conditions:             

You are not following my trading plan.        

You have reached your daily or weekly maximum loss.        

You are sick or very tired.      

You are very emotional (upset, pressured to make money, self-esteem destroyed).        

You are using new tools you are not completely familiar with.        

You need time to work on your trading plans.          

A winning attitude

Losing traders look for a “sure thing”, hang on hope, and avoid accepting small losses. Their trading is based on emotions. You must treat trading as a probability game in which you do not need to know what is going to happen next in order to make money. All you need to know is that the odds are in your favor before you put a trade. If you believe in your edge, which is you believe that the odds are in your favor for each trade you enter, then you should have no expectation other than something will happen.

Your attitude will have a direct influence on your trading results:

Take responsibility for all your actions; do not blame the market or world events.              

Trade to trade well and for the love of trading, not to trade often and not for the money. The money will come as a result of trading well.  

Do not be influenced by the opinions of others. Reach your own decisions and follow them.  

Never think that taking money from the market is easy and never assume that you know enough.

Have no particular expectation when you place a trade because you know that anything can happen. 

Do not try to guess the future; trading is a game of probabilities. 

Use your head and stay calm; do not get excited or depressed. Handle trading as a serious intellectual pursuit. 

Do not count how much money you have made or lost while you are in a trade – focus on trading well.

Technorati Tags: day trading, day trading courses, online trading, stock market, stock trading, swing trading, trading logs, trading software, trading systems

That was the good news. The bad news is that those companies are selling you the tools and service only. They do not sell you any guarantees of success. It does not matter if you profit or lose money, the trading company will get its fee for each trade anyway.

Since you are considering going into the stock market, most likely you are planning to get a significant return on your investment which should also be better than what you would get buy investing your money into mutual funds (less risky than single stocks) or even no-risk certificate of deposits (CDs) where returns are guaranteed.

Well, how can you get such returns? The answer of course is simple and well known: buy low, sell high. If you do it most of the time you’ll be a successful stock trader. Now the first problem comes: how do you know when to buy? There are probably several ways to do that, we do not discuss this here, let’s assume that you know somehow or think you do know. Lets say you got lucky and the stock after you bought it is going up, just as you planned.

Now another problem comes: when to sell? After the stock is up 20%, what do you do? Sell now, or wait until it is up 50%, 100% or 200%? Do you listen to investor news and do what everybody else does: selling, buying more, or continue holding the stock? If you choose one of the first two options, how much of the stock you should buy or sell? Or if you hold the stock, are you sure it will continue to go up, or you may end up waiting until the stock price is back to the original and than lose it’s value resulting in your losses.

The truth is some people actually do know the answers to those questions most of the time and actually make profit. The question is, are you as good as those people? Most people are losing money guessing and trying to time the market. If you’re new in this game and not planning to spend much time on research, chances are you will lose. You will be competing with professional traders, big players and insiders who profit mostly because many others keep losing. Plus what are the chances that you can predict the market? The chances are very slim.

Some may argue: “I had that stock, I sold it when it was up 20%, but if I did not sell it at that time, now it would be up 300%. How stupid I was when I sold it, if I did not I’d made a lot of money. I have to do this again. It really proves that I can make a lot of money there and it’s easy!” That is right you can make a lot of money, but it is not that easy as it looks.  Lets assume you did not sell the stock at the time it was up 20%. Then what makes you think you would wait until it is up 300%? You may have sold it when it was up only 25%. Or it may go down several times below 20% increase, you could have thought it was going down forever and sold it even with a lower than 20% profit.

The bottom line is that it is easy to look at the past and see all the mistakes you’ve made. However it is very difficult to do right things for the future. Unless you know market trends well, understand related industries and stock company financials, most likely you will not be able to make profitable trades. Even professional traders do mistakes and lose money. If you are not one of them or not planning to become one, your best bet would be investing into CDs, mutual funds or your own business.

Technorati Tags: before you start Internet stock trading, day trading, how to start trading online, how to start trading stocks on the iinternet, stock, swing trading, trading software, trading stocks on the Internet