What does pros say about trading

Re: Day Trading Question for Pros
by: megayieldseeker (42/M) 03/15/06 06:58 pm
Msg: 681824 of 681973

Hi, I am a full-time trader/investor out of my own account, for about 5 yrs. Here are my dozen pearls of wisdom. By "my" I don't mean I invented them, only that I believe in and use these ideas, which came from other traders and investors.

1) Sell your losers fast and let your winners run. This rule, all by itself, separates winning traders from losing ones, but is very hard to implement once you get out of a practice account and into your real money.

2) Put in a stop loss at 7-8 % of your order price, and never change it, no matter what happens in the market

3) Never average down. If the market moves against your trade, let it get stopped out (per rule # 2 above) and never look back

4) When you take a loss on a stock, do not allow yourself to trade it again for a reasonable period of time like a week or two. Otherwise, you will get caught up in the powerful and money-losing emotion called "getting back to even".

5) Don't argue with the market. The market is always right. It doesn't need a reason, it just is. If you find yourself arguing against the market on a particular stock, get the hell out, lick your wounds, and move on.

"The market can remain irrational longer than you can remain solvent" - J.K. Galbraith

7) Buy half a position, and then, if the stock moves the way you want it to, buy the other half a few weeks later.

8) Momentum doesn't last forever. Understand where you are in the momentum cycle before buying a momentum stock. Even if the price is still going up, if the volume is flat or declining, you could be at the tail end of the momentum run.

9) Don't be greedy. Decide on a reasonable profit when you enter the trade, and cash it out if you hit that profit level. 20-30 % is an outstanding profit for most stock positions, and you should happily take it and move on if you can. What Cramer calls "Pigs get slaughtered," but the idea is much, much older than Cramer.

10) The market is pretty random. Avoid thinking you can outsmart or predict it, e.g. with charts, financial statement analysis, oscillators, etc. You can't. No one can predict the market. If there was a method for predicting the future with even a 50.00000000001 % accuracy rate, it would be buried in an underground vault and guarded by a heavily-armed Army division. The best you will ever do is the 50 % odds of a coin-flip, which is much more than sufficient if you...cut your losses fast and let your winners run (see Rule # 1)

11) Bet on sectors, not individual stocks, in most cases. The large buyers who control stock prices make sector bets. A good company in a bad sector will still get hammered; a mediocre company in a hot sector will do OK. Study sector trends and movements and invest accordingly.

12) Don't overtrade. The most important virtue of trading is patience - taking your finger off the "Sell" button. If you don't have real conviction in the trade, then why do it in the first place. If you have conviction, don't let it be shaken by a CNBC report, a Cramer mention, or a stock board. Without conviction, you're at great risk of buying the peaks of cycles in a panic, and selling the troughs in a panic. You must believe in your stock - or your short position.

And finally,

Don't be afraid to do nothing. Nobody ever lost money by sitting in the spectator seats and drinking a beer.