There are some very common mistakes that investors and traders make repeatedly. Unfortunately, these same mistakes have been made since the dawn of modern markets and will likely always be repeated throughout existence of the markets. This is why reading charts are so important. They are a mirror image of investor reaction in the market and reveal the same mistakes over and over again.
You can significantly boost your chances of success in the markets by becoming aware of these typical, repeated errors and taking steps to avoid them. In tonight’s topic we'll explain the most common mistakes and how to avoid them.
1. No Plan If you don't know where you're going, any road you take will get you there. If you have no plan, you can’t get where you want to go.
We recommend having a personal trading plan or policy that addresses the following issues.
Goals and objectives – Have an idea of what you're trying to accomplish using the stock market as your vehicle to get where you want to be. For example, accumulating $200,000 for a child's college education or $2 million for retirement at age 55 are appropriate goals. Just saying you want to outperform the market is not a goal.
Risks - What risks are relevant to you and your portfolio? If you are 25-years old and saving for retirement, the day to day market volatility shouldn't be an issue or meaningful risk. At the same time, a young person 25 years old cannot afford to be too conservative because inflation will erode any long-term portfolio if you do not have enough exposure to growth stocks.
Having a good plan and sticking to it is not nearly as exciting or as much fun as trying to time the markets, but without a plan, you won’t get where you want to be in the end.
2. Time Horizon is Too Short Most investors are too focused on the short term. The stock market is a tool to help you achieve financial freedom but that doesn’t happen over night. It takes time and too many participants want success too fast and get frustrated when they don’t achieve that success. Over time, you will succeed but you have to learn before you earn.
3. Financial Media a Waste of Time Too much attention is given to financial media such as CNBC and FOX Saturday and various shows like that along with newspapers and magazines like Money and Barons. Believe me, I used to read and watch them all when I first started in the markets and not once did they ever help me make any money. In fact, most of the time, I lost money buying stocks they recommended only to have them go down shortly afterward. There is almost nothing on financial news shows and in papers that can help you achieve your financial goals. Instead, we recommend watching the charts on your computer screens. That is where you’ll make the most money.
Conclusion Investors who recognize and avoid these common traps give themselves a great advantage over other market participants who can’t stay away from these common mistakes. The solutions above are not exciting; however, you are likely to have a better chance of profitable trades if you avoid the traps most everyone else falls into.
David Colletti
Founder
StockTradersHQ.com
The Headquarters for serious traders.
Copyright © 2008 StockTradersHQ.com
Sunday, July 27, 2008
Thursday, July 10, 2008
A Dozen Rules for Trading Fools
1) Lower your position size until you show a track record of good performance. It is better to lose small so your can eventually win big.
2) Always look for favorable conditions to trade from or stay out of the market until they appear. Bad executions will ruin a perfect chart setup.
3) Watch the stock before you enter. Look for evidence to confirm your decision. The volume and trend must support the reversal, breakout or fade you're expecting to happen.
4) Decide how long you want to be in the market before you execute the trade. Don't day trade a stock you want to invest in or invest in a stock that was supposed to be a swing trade. Don’t swing trade a stock that was supposed to be a day trade. You are supposed to be using different accounts for different trading objectives. If you mix these trades up then you’ll just have more than one account doing the same thing. There is no point in this.
5) Take positions on the side of momentum, not against it. It's less dangerous to be on a speeding freight train then to jump out in front of one.
6) Avoid trading at the open. There are too many fades, reversals, gaps, news and other things that will likely dramatically affect stock prices in the first ten minutes. Let the market settle down first after the market makers and specialist have fleeced the amateurs. Only then is it time to trade. Let the market show its hand before you trade it.
7) Avoid pre-market trading unless there is an absolute must own stock that you missed the day before and you found in your scans after the market closed. If I find a stock like this in my scans the night before, I may buy it in pre-market. Other than that situation, Pre-market trading is too difficult due to the spreads, illiquidity and the fact that you are hampered by the dreaded limit order and the inability to execute a stop order.
8) Stay away from the reactions of the crowd. Their emotions often signal opportunity in the opposite direction. Profit rarely follows the masses. Step aside when confusion is in the air and the market or herd lacks direction.
9) It is okay to take overnight positions. Buy at the close and hold until the next day’s trading session. As long as your disciplined enough to maintain a proper positions size. By holding overnight, you can take advantage of selling the gap up for profit at the open. Of course, there is always risk the stock will gap down. Holding over night is risky but there is also the potential for big rewards.
10) Trade with a strategy of entering new trades at support and exiting them at resistance in a range-bound market. Trade with a momentum strategy of buying breakouts at new highs or selling short at new lows in a trending market.
11) The entry is the key to success. An excellent entry on a mediocre chart makes more money than a bad entry on an excellent chart.
12) Follow the STHQ indicator panel. Our BBI and MSL indicators have been on the money during this latest market slide. If you are following them, you should be either 100% cash or shorting the market. If you are in cash as these indicators have advised, you have preserved all your prior gains. If you are short the market based on these indicators, you are making a healthy profit as the market goes down. Do not underestimate the value of the STHQ indicator panel.
2) Always look for favorable conditions to trade from or stay out of the market until they appear. Bad executions will ruin a perfect chart setup.
3) Watch the stock before you enter. Look for evidence to confirm your decision. The volume and trend must support the reversal, breakout or fade you're expecting to happen.
4) Decide how long you want to be in the market before you execute the trade. Don't day trade a stock you want to invest in or invest in a stock that was supposed to be a swing trade. Don’t swing trade a stock that was supposed to be a day trade. You are supposed to be using different accounts for different trading objectives. If you mix these trades up then you’ll just have more than one account doing the same thing. There is no point in this.
5) Take positions on the side of momentum, not against it. It's less dangerous to be on a speeding freight train then to jump out in front of one.
6) Avoid trading at the open. There are too many fades, reversals, gaps, news and other things that will likely dramatically affect stock prices in the first ten minutes. Let the market settle down first after the market makers and specialist have fleeced the amateurs. Only then is it time to trade. Let the market show its hand before you trade it.
7) Avoid pre-market trading unless there is an absolute must own stock that you missed the day before and you found in your scans after the market closed. If I find a stock like this in my scans the night before, I may buy it in pre-market. Other than that situation, Pre-market trading is too difficult due to the spreads, illiquidity and the fact that you are hampered by the dreaded limit order and the inability to execute a stop order.
8) Stay away from the reactions of the crowd. Their emotions often signal opportunity in the opposite direction. Profit rarely follows the masses. Step aside when confusion is in the air and the market or herd lacks direction.
9) It is okay to take overnight positions. Buy at the close and hold until the next day’s trading session. As long as your disciplined enough to maintain a proper positions size. By holding overnight, you can take advantage of selling the gap up for profit at the open. Of course, there is always risk the stock will gap down. Holding over night is risky but there is also the potential for big rewards.
10) Trade with a strategy of entering new trades at support and exiting them at resistance in a range-bound market. Trade with a momentum strategy of buying breakouts at new highs or selling short at new lows in a trending market.
11) The entry is the key to success. An excellent entry on a mediocre chart makes more money than a bad entry on an excellent chart.
12) Follow the STHQ indicator panel. Our BBI and MSL indicators have been on the money during this latest market slide. If you are following them, you should be either 100% cash or shorting the market. If you are in cash as these indicators have advised, you have preserved all your prior gains. If you are short the market based on these indicators, you are making a healthy profit as the market goes down. Do not underestimate the value of the STHQ indicator panel.
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