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Would You Like Increased Profits? Then Focus On Decreased Losses!

Let me share four RULES for trading which directly handles losses and if followed, can 'plug' several of your profit leaks!

RULE 1. Wait for the stock to CONFIRM the estimated direction prior to entering the trade.

This rule can reduce the NUMBER of losses you have. As straightforward as that sounds, it's one of the most often violated principles of great trading habits. So often is the rule broken that we are all familiar with cute little descriptions like "catching a falling piano", or perhaps "reaching for a falling knife."

What you may use for this confirmation is your own decision; price rise or fall, momentum, number of trades or bid / ask "size" are just a few methods. Personally I combine all of them (more or less), developing a 'feeling' about the confirmation, as opposed to a measurable quantity.

Nevertheless you choose to define confirmation, allow experience be your greatest teacher here. Don't enter the trade until you're convinced the stock is moving your direction!

RULE 2. Whenever you are filled on the entry, put a STOP loss to minimize your potential for loss.

This rule handles the Amount you may lose on any one trade. I prefer to use about half of the stocks day-to-day movement for my stop loss amount. For example, if a stock price moves on average, say $1 each trading day, then I'll back off half of that, or 50 cents and put my stop loss there. This restricts the losses possibly incurred on that investment.

Whatever you decide to use, be FAITHFUL in staying with the protection afforded by the stop. In other words, Don't CHANGE IT. If you are stopped, you are stopped. He who trades and runs away lives to trade some other day!

Equally necessary is permitting your profits to increase AT THE Very Same TIME! Here's how you can do that.

RULE 3. When you become profitable in a trade, substitute the stop loss by using a TRAILING stop, trailing by that amount of profit.

This is so important that I think it ought to be the twenty second amendment to our Constitution! Say you are up 25 cents in a trade and you have your stop loss in at fifty cents below your entry.

Substitute the stop loss with a twenty five cent trailing stop. After all this, you WORST CASE result for the trade is BREAK EVEN (give or take a few pennies)!!! On my live trading lab on my internet site, I frequently refer to this as the MAGIC point in the trade. You've got virtually NOTHING to lose along with EVERYTHING to gain from that point on !

Last but not least, for the 'do-it-yourself- investors:

RULE 4. Leave the trade alone from here on!

If you're in doubt, seek the advice of an investment professional on the best way to effectively raise capital. All you've got to do is browse: public shell or reverse merger.

The market overall will do a far greater job of handling the trade than you or I EVER could! Once you have reached the MAGIC POINT with your trade, just go away and go do something else. Your trade is certainly on autopilot!

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