Let’s talk about the typical mindset of a trader that doesn’t have a plan or investing discipline which results in a common trading mistake.
Typical scenario is below:
You have picked out your stock and look at a chart to find the point you want to buy it. You are patient and the stock hits your buy price and you buy it.
You see it move higher and the stock is doing everything right. Some time goes by and you are up a lot.You are feeling pretty smart. Hey stock picking is easy.
- Sell now and take the profits ?
- Buy more because now the TV stock pundits like it ?
- Just sell some and just see where the remainder of your stock goes because it’s just profits right ?
- Hold it all and just let it go higher and see what happens.
Some time goes by and the stock is even higher now but all the sudden the stock has a big down day. You decide to wait until it goes back to where it was and then sell it.
The next day it gaps lower and you decide its come down too much so you buy some more and sell it all when it gets back to where it was a couple days ago.
The next week or so the stock doesn’t really move much and you figure all the selling is done and it’s ready to move higher so you just sit on your larger position(remember you haven’t sold any and added some on the “pullback” ).
The next week the stock slowing unravels and the stock is just above where you first bought it but with the extra shares you bought at higher prices you now have a slight loss overall.
Yikes, what happened……..Well I bet every trader has done this exact scenario when starting out and maybe even again later in their trading career.
YOU HAVE TO HAVE AN EXIT STRATEGY BEFORE ENTERING A TRADE AND UNDERSTAND SELL SIGNALS.
Emotions are so hard with the stock market and can easily destroy a trading strategy so have a plan, don’t get greedy and follow the exit.
What You Should Do :
- Buy stock at a predetermined price with amount risked determining how many shares you buy.
- Understand proper sell patterns on a chart or warnings signs.
- Only add to position as you are up and only with a smaller amount(never average down).
- Have trailing stop order to move up with your position so you remove any emotions.
- Follow your initial plan and let the stock work. If you are stressed then you probably don’t have a plan or took too big of a position.
Is it important to only risk the same amount for each trade or you can risk having 1 big losing trade wipe out the gains on many winning trades.
Trade with a position size that you are comfortable with so you aren’t stressing over it.
Can you relate to the trading scenario above ?