Not trading on days that are bad for your strategy or not trading stocks that don't work how strategy defines them is very hard to do. If one can master that idea and execute that idea without hesitation, you've just found the holy grail of trading. By only trading on good days and/or good stocks that are defined by your strategy and at the same time cut on any losses that might result from a winner, you'll be profitable. You cut your potential winners when they turn out be to losers.
I've been cutting losers that turn into losers. I'd trade stocks that aren't apart of my strategy, for some reason thinking they'd be winners, and I'd have to cut them. Yeah it's good I'm cutting my losses but I'm screwed before I even get in the trade because the stock is a loser.
When people say, cut your losses. I think it needs to be explained a little more. The idea of cutting losses is key to becoming a trader, but don't trade losers and then be forced to cut it. If you always trade potential winners based on your strategy, your odds of success are boosted extremely. Sure, you won't be hitting 100% winners but that fact that you're trading all potential winners is great. This is when cutting your losers helps a lot. You're already trading all winners, and hey, a potential winner comes a long and turns to a loser, cut it and wait for the next winner.
This might sound so elementary or so simple but it's like I'm getting a little light bulb turned on in my head and I'm truly starting to understand WHY these people always say these things. It's different when you read it for the first time and try and do it, but when you finally begin to understand the meaning backed behind these ideas, it's like you can see behind the smoke and mirrors.
Today I traded a loser and had to cut my loser. That's what I'm pissed about. I don't care if I trade a winner and it turns into a loser, that I'm ok with. I have a post on my blog about 4 different kinds of trades.
-Winners
-Losers
-Good trades
-Bad Trades
Winners and Losers will always happen. But good trades and bad trades are totally different. I'm working on having Winners and Losers come from only Good Trades. A Good trade is one where you execute your plan perfectly, you trade a good setup, you wait for the wounded rabbit instead of running in the fields tiring yourself out chasing everything you see. A bad trade is one where you are chasing rabbits, you don't trade stocks based on your strategy, you're ignoring your strategy. Now, getting a winner from a bad trade is horrible because it'll only reinforce that a bad trade could work.
Good trade can come from not even trading at all. By waiting on the sidelines when your strategy says, "hey, there's nothing here for you, move along", you've just saved yourself from making a Bad trade that will probably result in lost cash. This is an idea I'm trying to grasp and I believe I have grasped it, but executing that idea is the next step. Truly not trading on days that are bad for you. If I can do that, I'll be another step closer to ending the week profitable.
4 comments:
Solid post!
Right on. Thanks for the comment.
Hey tradeswing,
I new at trading. I've been doing some research before I actually enter the market. I'm a full time college student and I work part time. But I have a serious passion to learn to become a successful trader. Do you have any practical advice to send me in the right direction?
Scotty
dynamic_ceo@yahoo.com
Passion I think is so key. Without passion there's nothing really driving you to get over your losses and to continue to improve yourself.
There's millions of different ways to profit from the market. Find something that you truly believe in and stick with it. It's more self control and discipline than anything. Making money isn't that hard, keeping what you make is the hard part. Knowing when to not trade is the hard part, knowing when to bail out of a stock when it's not working is the hard part.
On the left hand side under the Downloads section there's lots of amazing information that I've read myself or created.
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