Stock Trading Discipline

There are some general “rules” that I try to apply to my trading discipline. These tips have been established through my personal trading experience. If I can ever apply these without emotion and without exception, I may well proceed to even more successful trading. Well, perhaps I can’t conquer the emotion part as there will always be some level of fear, however, I should turn my tips into rules and apply them stringently without exception. A little fear is not necessarily a bad thing as it is protection mechanism against taking overly aggressive and risky actions.

1. Make the trade based on fundamental and technical analysis. Be confident and committed with the decision. If it turns out to be wrong, get out of the position.
2. Take what the markets will give you. Don’t be greedy. Taking the profit to protect against losing that profit is better than a lost opportunity (the opportunity is what you are hoping for by holding out for more profit).
3. Take the loss when it is due. Don’t take more loss by holding the stock as it drops further. Unless you stop trading, this won’t be the last trading loss you will take.
4. Don’t hold a position past earnings announcement. Quite often, a stock climbs on its way towards earnings announcement only to deflate after the earnings announcement, especially if the outcome is below expectations. Contrarians may do the opposite and buy the position to profit from an anticipated rise in the stock after earnings announcement. The risk is not worth it for me.

A good stock trading system offers the trader clearly defined entry and exit points for stock positions. A good stock trading system shows the historical view which adds to the confidence that the system works. It is true that past performance is not necessarily an indication of future performance. However, the historical backdrop provides credence to the technical analysis method.

More you might like

Trading Gold Stocks in 2009

This article examines various elements of importance for trading gold stocks.

Paper Trading versus Real Trading

This article compares paper trading with trading involving real money. Failure in paper trading is a sign that the person should not partake in real trading. Success in paper trading does not necessarily mean a person will succeed in real trading.

Stock Market Pulse and Sentiment Q1/2009

This article takes a snapshot view of the stock market pulse and sentiment as a heads-up for stock market outlook.

Ranting on Stock Market Day Trading (March/2009)

This article covers my ranting on stock market day trading in the month of March/2009. Main lessons learned are listed to be remembered.

Trading on Support and Resistance plus Trend Reversals

This article examines the technical analysis indicators for support and resistance and trend reversals. Knowing how to identify and apply these will translate into a valuable tool for your trading success.