Saturday January 26, 2008

Cautious Trading

It’s also important to remember that its very easy to get addicted to playing the market & can sometimes be confused with gambling. There are many traders out there who like to take a gamble now & again but it’s very important that you should know the difference between gambling & trading.

Make that your first rule “Never gamble on the stock market”, make sure you know exactly what you’re going to do when things don’t go your way, always have an exit strategy & never get into the wishing game i.e. The stock is falling, I’ll hold on just a bit longer & it might go back up!!!, Usually it doesn’t go back up so its important to have an exit price before you even make the trade.

Chart courtesy of StockCharts.com

Another important point is try to be as consistent as possible. Don’t ever enter the market without having your own niche in it. The market is just too big & that’s where many traders fall down, they try to give every type of trading scenario a go all at once & usually end getting confused & broke.

Instead try a one strategy at a time approach, many traders just play earnings, this gives them a lot of time to study a stock before they invest any cash in it, it can be quiet profitable.

Chart courtesy of StockCharts.com

Another important point is to keep notes & lots of them. The best way to do this is fill out an Excel Spreadsheet with all your trades. Or you could practice by entering all the trades that you think are going up, the price you would buy at & the price you would sell at, by doing this you can get a fair idea if you are ready to enter the markets with real cash or not.