How To Trade Like A Pro
Trading like one of the much-ballyhooed Wall Street mavens - at least before they went running for the hills back last fall - is about years of commitment, study and hands-on practice. It’s about knowing the various ways to trade, when to use them and yes… having the money to use them in the first place.
But it’s also just about plain old common sense. While there’s no way you’ll ever master the art of working the markets to your advantage armed only with a 2-page How To guide, these are still tips to take to heart whether you’re intent on becoming the next Warren Buffett or you simply want to monitor your 401k during these volatile times, taken straight from the Smart Profits Report Archives.
Tip 1: See The Big Picture
I could rephrase this rule as: “See the complete picture.” This essentially means that you must look at trades from both a technical and fundamental perspective. Any trader with a foot in only one camp will eventually get his comeuppance.
Every good trader I know follows this rule. I can count the “purely technical” or “purely fundamental” ones on one hand.
So if you focus on the fundamental analysis, remember that while it’s a very useful method, it’s not the only one - and you must not simply follow it blindly. Apply Guido’s first rule by mixing in some technical tools - especially for timing your investments, so you avoid jumping in or out at the wrong time.
Tip 2: Take Note Of The Key Numbers
Massaging the numbers to fit your theory is a sure path to disappointment (or disaster). To avoid this, you must watch key market indicators like price volume and open interest to make sure you don’t endure the frustration of getting into a trade after the market has already fully priced the event or news into the stock.
And again, if you combine this with some numbers from technical analysis, you’ll get the complete picture. For example, make sure you…
- Don’t buy just below key resistance areas.
- Don’t set your stop-loss points just above key support.
- Know the difference between “stopping volume” (high volume that indicates the end of a trend) and “breakout volume” (high volume that accompanies a breakout or breakdown).
Tip 3: Forget About Being Right
“Never trade with the mentality of, ‘the market is wrong; I’m right.’”
Many investing mistakes can be traced back to “the need to be right.” Failing to adhere to stop-losses and hanging onto your losers is a major source of trading pain that results from “the need to be right.”
But you can combat this pitfall in a very simple way: Make sure you have a simple trading plan. If you have a written reason for everything you do in the markets, your emotional “need to be right” will be exiled to other endeavors outside of your trading activities.
Tip 4: Improve Your Results with Successful Trading Rules
Learning from folks that have already paid their “trading tuition” is a prudent way to consistently improve your own results. And these three trading rules, although simple, are highly effective, and come from one of the world’s best moneymakers. So try to fold them into your own trading plan.
Wednesday, March 18, 2009 - by Jeannette Di Louie, Assistant Editor, Mt. Vernon Research
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