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Although I could write all day about the importance of cutting your
losses and letting your profits run, like many novice traders and
investors, I sometimes do the opposite. I sometimes let a loss get
awayfrom me in the hope I will get back to even. Or, when I'm in a
winning trade, I take the gain too quickly before it turns into a
loss. On the floor of the exchange, this is known as "eating like a
bird and defecating like an elephant." Years ago, when I was a
relatively new buy-and-hold investor, I went long Iomega and didn't
sell, even when the stock went against me.
How could I let myself get stuck with such a
losing position? It really comes down to being a disciplined,
emotionless trader. It's easy to talk about being disciplined and
following your rules, but the truth is, it is extremely difficult to
do it in real life. One thing I have learned about myself is that it
is not easy for me to leave my ego at the door when I trade, or to
not feel a range of emotions, from fear and greed to hope and
hopelessness. To counteract these very human feelings, I rely on
technical analysis, as well as a structured plan that I follow
before, during, and after I make a trade. When I follow my rules
without letting emotions impact my decisions, I always do the best.
I have also learned to not berate myself when I miss a great trading
setup because another one is always around the corner. In the past, I
was impatient, trying to make money every single day. This is
possible during trending markets, but when the market starts and
lurches, I have learned to patiently wait for the best
opportunities. Most importantly, when I miss one good play, I just
wait for the next one--even if it takes a while.
One other technique I find useful is to keep a log of my trading
mistakes. This allows me to analyze my actions on a regular basis,
and helps me avoid repeating those mistakes. Whether you are a
novice or experienced trader, keeping a daily trading log can be
extremely beneficial. Although it's a lot more fun to write and talk
about our successes, recognizing and then removing the trading
demons from your life is one of the quickest ways to become a
profitable trader.
Now, please visit our blog at
http://stocks2watch.blogspot.com
We have several free trading tips posted there and you can add
comments if you like. We would appreciate you clicking on a link or
two at the bottom and letting the page load to help support the
page. Thanks and have a great week.
Larry
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