- December 19th, 201310 Ultimate Trading Survival Techniques
Trading is not for the faint of heart. Varying amounts of personal investment and often-stressful conditions can wear down the less prepared. For this reason, a little foreknowledge goes a long way in determining success. Here are ten tips to keep in mind when taming the stock trading jungle.
Pick Your Tools Wisely
Master carpenters have a trustworthy hammer. Master Chefs have a well-crafted knife set. In both cases, the seasoned professional knows that their tools make a difference. Establish your toolbox, choosing only those that work effectively within your system. In addition, avoid picking up new technologies or applications simply because of their newness and novelty. Determining what works is key to a good trading system, so don't fix what isn't broken.
Develop Your Trading System
The difference between the pack and the pack leader lies in his/her individual strength and strategy. Utilizing the same strategy as everyone else is a guaranteed way to minimize gains. Differentiating yourself means watching the markets, understanding your system, and leveraging it to maximum effectiveness. Focus on developing strategies, tools, and measures that work around your personal trading style and stick to it once you've found your winner.
Know Your Costs
In addition to sometimes absurd brokerage fees, real trading costs can occur from slippage. More often than not, this slippage occurs from prudently established trade stops and other automated measures that may, somewhat ironically, prevent you from hitting the optimum entry and exit prices. Other costs, like wash sale rules, which prevent loss deductions to lighten income tax burdens when losing positions are re-entered too quickly, can burn you further. Monitor your system and actions carefully and understand where cost occurs and how to minimize it.
Use Technical Analysis
Knowing how to make winning trades takes an advanced understanding of movements and trends. This is where technical analysis comes in. Comprehensive data, intelligent analytics, and informed decision-making based on this sort of sophisticated insight is a sure fire way to separate yourself from the rest of the pack. Watching the market is important, but watching it with a trained eye is potent.
Leverage Moving Averages
Many market analytics can clarify an otherwise complicated picture, but moving averages reside among the more insightful of this selection. The benefit of the metric lies in the smoothing of data that helps visually identify trends more easily.
Be Patient, Not Preemptive
The signals developed by your trading system involve a long and exhaustive process of understanding trades, market movements, and analytics in order to make intelligent decisions. At no point should this level of research be belittled, especially not when entering positions. Monitoring analytics for your designated signal point is intelligent, but preemptively jumping on a position simply because it was near your chosen number is foolish, and will feel so if the hasty decision turns south.
Know When to Fold
Buying and selling for gains is exciting, but selling for minimal losses is essential. Positions will turn south from time-to-time, the key is not to invite defeat by riding it well past its expiration date. Set exit points for yourself and know what loss you can afford. Get out when times get tough and live to fight another day instead of betting the farm on a "sure thing" turned sour.
Buy Strong, Sell Weak
The momentum of markets plays a large part in determining the outcome of a particular position. Markets headed for an upswing, no matter how short, offer the potential for profitability. When tracing key metrics of stocks, follow the simple rule of "buy strong, sell weak". Following a position into a period of strength means solid returns, while abandoning ship when a loss or gain promises to sink is just smart trading, and should be practiced judiciously.
Keep a Trading Journal
The often erratic and sometimes irrational movements of the marketplace require time and experience to navigate. But time will do little for you if you aren't actively learning. For each position, keep a record of what metrics lead you to your decision, what metrics triggered the sale, what the outcome was, and any other relevant data, in order to later observe trends in effective trading practices. Keep in mind that any data that goes un-recorded is data that cannot be considered so the more the better.
Leave Emotion at the Door
In each item listed here, logic and reason have been the driving forces. This is not without cause. Trading is a chance to create wealth in a fast-moving and challenging market. Throwing emotions and pride into the mix takes a decidedly analytical process and turns it into a dangerous gamble. In all things, temperance is essential, so exercise it, and leave your irrational side at the door.
Trading can be daunting, but gleaning a little knowledge before you get started can mean the difference between sinking and swimming. Choose your tools and develop your individual trading system with an eye on costs. Leverage valuable analytics and move when they say, exercising patience in the process. Remember when to get out and don't let pride play a factor. Finally, keep a record of your trades and learn from your mistakes/successes in order to breed future gains. The market can be overwhelming, but it only takes a few key ingredients to turn the minefield into a rose garden.