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Trading Sins

  
  Education
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  • over-trading
  • too much leverage
  • under capitalization
  • not adhering to stops
  • trading without a plan
  • paying short thrift to proper execution
  • assuming too much risk, not respecting it
  • trading products I don’t fully understand
  • competing where I have no edge
  • becoming too emotional
  • under-valuing the need for ample liquidity
  • misaligning time-frames (the time a trade typically needs to play out, versus my expectation/need for it conclude)

Successful traders fail all the time. In fact, many even fail a majority of the time. The difference is that their failures are not a failure to execute their plan. The failure rests in the fact that the expertly chosen trade turned out to be wrong (nobody can be right 100% of the time – except Congress). And when the trade was wrong, they took their loss which resulted in minimal damage to their portfolio and moved on to the next opportunity.

When should traders be in or out of the market?

  
  Education
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There are times when traders should NOT be in the market. There are other times when the market is rocking and traders should get aggressive. How can you tell the difference? Here are 5 helpful tips.

1) Accumulation and Distribution Days: When should traders go to cash? Follow the big boys! The big institutions control the market, so pay attention to their actions by tracking accumulation anddistribution days. When institutional selling builds up over a short period of time (2-4 weeks) AND leading stocks start to break down, that is a great sign to start raising cash. Why? Because 4 out of 5 stocks move in the general direction of the market. I don’t care how good the company is, when the market’s in a downtrend, you don’t want to fight it.

2) Uptrends and Downtrends: Don’t get caught up with the terms Bull and Bear market. Just recognize if we are in an uptrend or a downtrend. For example, use the 50-day moving average on the NASDAQ Composite as a general indicator to be in or out of the market. Above the line usually means we’re in an uptrend and it’s a green light to be in stocks…below the line, downtrend and red light.

3) Scale In: When conditions start to improve, SLOWLY scale back in. There’s no reason to rush. Take a few positions and test the waters. If the rally is for real, there will be PLENTY OF TIME to make money. If you are wrong, at least you can get out quick with minimal damage and protect your portfolio. Think Defense First!

4) Buy the Strongest Earnings & Sales Growth: When markets are in a confirmed uptrend, what stocks should you buy? Be in the best! Don’t settle for low rate stocks. Look for companies that have strong earnings and sales growth. Why be in dead-money stocks with little growth potential? We’re in this to make money, right? So be in stocks that have a higher probability of moving up!

5) Fundamentals AND Technicals: Why does it only have to be one or the other? Why not USE BOTH! We want as many factors as possible in our favor when trading the market. Therefore, start with strong fundamental companies AND combine the proper technical timing to identify ideal entry points to effect your best risk vs reward trades. (more…)

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