Saturday, June 24, 2006

Wishful Thinking


When the pain grows bit by bit, the natural tendency is to do nothing
and wait for an improvement. A sleepwalking trader gives his losing
trades “more time to work out,” while they slowly destroy his account.
A sleepwalker hopes and dreams. He sits on a loss and says, “This
stock is coming back; it always did.” Winners accept occasional losses,
take them, and move on. Losers postpone taking losses. An amateur
puts on a trade the way a kid buys a lottery ticket. He waits for the
wheel of fortune to decide whether he wins or loses. Professionals, to
the contrary, have ironclad plans for getting out, either with a profit
or a small loss. One of the key differences between professionals and
amateurs is their planning for exits.
A sleepwalking trader buys at 35 and puts in a stop at 32. The stock
sinks to 33, and he says, “I’ll give it a little more room.” He moves his
stop down to 30. That is a fatal mistake—he has breached his discipline
and violated his own plan.
You may move stops only one way—in the direction of your trade.
Stops are like a ratchet on a sailboat, designed to take the slack out of
your sails. If you start giving your trade “more room to breathe,” that extra
slack will swing around and hurt you. When the market rewards traders
for breaking their rules, it sets up an even deeper trap in their next trade.
The best time to make decisions is before you enter a trade. Your
money is not at risk, and you can weigh profit targets and loss parameters.
Once you’re in a trade, you begin to form an attachment to it.
The market hypnotizes you and lures you into emotional decisions.
This is why you must write down your exit plan and follow it.
Many may not be satisfied by this i myself seen many trader friends
who turn every miss trade into an investment for future think about it
is it ok to do that.

4 comments:

Anonymous said...

cut your losses (single rule) can make a pradigm shift in your protfolio.Though I have failed so far, in that, all the time.But actually we got to do it buddy as the cnbc ad.goes.
deepak
imokurokay

Lokanath said...

Desciplined trading is very important. Identify a stock which performs nice swings and identify nearest clear top and bottom, then buy immediately after next low which has occurred above this bottom, with a stop loss just below this bottom, for an immediate target of the top price.
Remember many stocks will be in consolidation mode/flat for longer time than rising or falling. Hence, do not stick to your stock forever. Recycle frequently, put on sale dead stock. This should bring you more money.

bliss said...

this is very good view,but to follow is bit difficult, well said, where i can find more of this sub., keep it up
if possible can u mail me love
easwaran
bbliss47@yahoo.co.in

GEETESH said...

TOTALLY INCORRECT,WHY DID WE NOT BELIEVE IN WHAT EVER WE SEE ALL THE TIME,I CAN'T UNDERSTAND. I TOTALLY DISAGREE WITH IT.
IN MY VIEW,IT SHOULD BE LIKE THIS,CHOOSE ONLY GOOD BLUE CHIP SHARES,IN THE RECENT FALL ALSO,WE HAVE SEEN THAT THE DRAGGERS ARE JUST THE COMPANIES WHICH ARE OF MOMENTUM KIND,LIKE RCF AND BSEL INFRA AND ENDLESS OTHERS,
IF WE CHOOSE A GOOD COMPANY LIKE TATA,RELIANCE,OR ANY OTHER GOODONE,EVEN IN DAYTRADING IF WE DONT MAKE MONEY THEN WE ARE AT LESS RISK,AND ONLY IN GOOD COMAPINES WE SHOULD SEE LIKE AN INVESTMENT MODE,IF WE HAVE TO CONTINUE FOR MORE THAN ONE DAY,AND ONE THING MORE,IF U WANT TO PLAY A MOMENTUM PLAY OF BAD COMPANIES,THEN PLAY WITH A STRICT STOPLOSS PREDETERMINE D,
BEST WISHES,
GEETESH,
SHARKHAN3@YAHOO.COM

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