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Steal Warren Buffet`s Stock Market Lesson Plans?
By: David Jenyns
Why should you want to steal someone else`s stock market lesson plans?
First, let me tell you that a trading plan is only useful if you follow it.
Following your plan will make you successful, yet many traders circumvent the
stock market lesson plans that they have carefully created. They become
emotional invested in a trade, to the point where they ignore all warning signs.
Remember, when the market corrects itself, which it always does, no position is
immune, no matter how strongly your ego may be tied to it.
Many investors have stock market lesson plans that watch as their portfolio
values are cut in half or more, yet they will still hold their positions. They
may fear being left out of a big gain, or be so deep in loss that they felt they
couldn`t possibly sell at that point. But even if you believe that all positions
will recover from their losses, and the truth is that not all of them will, this
is a terrible way to trade.
You tie up too much capital, and your rate of return plummets. Just as you
shouldn`t become emotionally involved in a trade, you should also never become
tied to ideas. By this I mean becoming so fond of a particular strategy or trend
that you cling to it even after it has stopped working. You need to have
strategies, and to have plans, but you must also be aware of the shifts and
swings of the market, the beginning and the ends of trends.
When you first form your plan for a trade, you should consider what price or
price range you think the stock is likely to reach. This is often called a
target price, which gives some traders the wrong impression. A target price is
not a price that the stock has to meet. A stock does not have to do anything. If
you treat your target price as a goal, it can lead to many problems. Your target
price should only be used as a guideline.
The target price helps you figure out your risk to reward ratio, and it gives
you an exit point in your trade. At the least, it should give you a point where
you`ll reassess the trade`s ability to continue to moving upward. But your trade
may never reach your target price. Many market factors can interfere with its
progress, and you may have set your target higher than you should have. Since
there`s no way all your trades will hit your price targets, it is a good idea to
sell half your position at a more conservative target. Routinely taking profits
will reward you in the long run.
There are a number of things that can interfere with a stock`s movement and
force you to close your position sooner than you`d anticipated. Your stock
market lesson plans should cover all of these possibilities, but here are some
reasons that should always prompt you to close a position:
1. The end of a trend. All trends end some time, and you should be prepared for
this.
2. The stock`s upward movement has slowed or been abruptly broken, ending its
momentum.
3. The stock is approaching a major psychological barrier, perhaps reaching 100
dollars or 200 dollars a share, which should have been anticipated in your plan
4. The stock is about to reach a resistance level it has been unable to break
through before.
This technical barrier should also have been anticipated in your plan.
5. A sudden market wide decline, or the threat of one, or some other serious
uncertainty,
which leads to unsafe market conditions.
Exiting a losing trade is not a big deal. Ending a position whether or not the
stock reaches its target price, in accordance with your stock market lesson
plans, is good trading. The best traders would rather lose a small profit than
take an unnecessary risk. You don`t have to win on every trade; no one does, and
it`s dangerous to try. In fact, by limiting losses, a good trader can be
profitable overall, and make money on only 40 percent of his trades. Cut your
losses and start fresh with something else when you need to. You`ll be happier,
and you`ll make much more money.
About the Author:
Discover BIG profits from the market by downloading your FREE copy of David's
new Ultimate Stock Trading Systems course. www.ultimate-trading-systems.com/stocks.html |
