You should always get a game plan in place before making a trade. Getting caught on a emotional roller coaster is a sure way to end up penniless.
Points to Know:
- What is my maximum risk?
- What is my maximum reward?
- What is my break even point?
Make a plan:
- What is my entry point?
- What is my exit point . . .
- For taking profit or
- For stopping losses.
The most important part of your plan is to make a good plan and stick to it! Don’t let greed or fear over come you. It isn’t easy. I know. If you go outside the plan you will wish you hadn’t later. Remind yourself of that when the going gets tough. In the end you will thank your self, feel a sense of accomplishment, and control if you stick with it.
When I say perseverance I’m not saying keep throwing your money away until you get it right. I’m saying persevere in your obtaining skills, knowledge, and technique. In short development toward a successful trader and investor. Warren Buffet didn’t make his billions over night. We all know it yet the get-rich-quick schemes are as prevalent as ever. Knowing how to persevere is a attribute that you can use in more then financial skill matters. It is something most of us already have to some degree. The key is to strengthen it and nature it when it come to combating our biggest weakness, “The Quick Fix”. Greed is another name for it in the trading world. We want the win now without doing the work to get it. Persevere in your development and you will become a success.
What are the attributes, qualities, or criteria for becoming a successful investor and trader? There is a famous quote from the book “Reminiscences of a Stock Operator” that says “Patience, Self-discipline, and mind-set of detachment” make a good trader. I am also reading a book called “Options Make Easy” it lists “patience, perseverance, knowledge, honesty, pre-planning, and discipline” as the criteria for successful investing. I will do a post on each.
Patience – Money and the thought of making large amounts of money causes people to become excited. When you are excited your judgment becomes flawed. Lean to be patience in your pursuit of wealth. I would liken it to a fighter pilot in a dogfight. Plan your attack, stick to your plan, wait until the target it in your sights before firing.
Patience pays off. Don’t expect to be a millionaire over night. Consider compounding profits. Each good trade or investment gives you a return which you can use to compound your wealth. A steady 1% return a week will compound to be 67% in 1 years. Let your profit accumulate and be happy with little wins. Over time the big ones will come but first learn to walk before you try to run.
Yes, I was a pig. Greed over came me and I took a tip without even doing the slightest fundamental or technical analysis. Tips can be useful but they should be taken with a grain of salt. When the red flags start flying don’t trust others trust your own experience. For instance, my online broker account gave the day of the earnings announcement for the stock. I had bought options that would expire before then. Why didn’t I sell if I was playing the earnings? I let the tipsters talk me into believing it would be earlier. The book Trading for a Living by Dr. Alexander Elder told me the same advice I’m sharing with you. But did I listen? Nope. It is so easy to get swept up in the feeling of security from the tipster. You feel the easy money coming and greed overtakes you. I’ve learned from this and I hope that this post helps you stiffen your resolve to scrutinize a tip heavily before acting on it.