Rules to Stop Losing Money
1. Don’t trust others opinions - It’s your money at stake, not theirs. Do your own analysis, regardless of the information source.
2. Don’t break your rules - You made them for tough situations, just like the one you’re probably in right now.
3. Don’t try to get even - Trading is never a game of catch-up. Every position must stand on its merits. Take your loss with composure, and take the next trade with absolute discipline.
4. Don’t believe in a company - Trading is not investment. Remember the charts and forget the press releases.
5. Don’t seek the Holy Grail - There is no secret trading formula, other than solid risk management. So stop looking for it.
6. Don’t forget your discipline - Learning the basics is easy. Most traders fail due to a lack of discipline, not a lack of knowledge.
7. Don’t trade over your head - Concentrate on playing the game well, and don’t worry about making money.
8. Don’t chase the crowd - Listen to the beat of your own drummer. By the time the crowd acts, you’re probably too late…or too early.
9. Don’t trade the obvious - The prettiest patterns set up the most painful losses. If it looks too good to be true, it probably is.
10. Don’t ignore the warning signs - Big losses rarely come without warning. Don’t wait for a lifeboat to abandon a sinking ship.
11. Don’t count your chickens - Profi ts aren’t booked until the trade is closed. The market gives and the market takes away with great fury.
12. Don’t forget the plan - Remember the reasons you took the trade in the fi rst place, and don’t get blinded by volatility.
13. Don’t join media - Avoid acting on messages, flashes and financial TV. Your judgment may be more correct than all of them put together
14. Don’t have a paycheck mentality - You don’t deserve anything for all of your hard work. The market only pays off when you’re right, and when your timing is really, really good.
15. Don’t ignore your intuition - Respect the little voice that tells you what to do, and what to avoid. That’s the voice of the winner trying to get into your thick head.
16. Don’t hate losing - Expect to win and lose with great regularity. Expect the losing to teach you more about winning, than the winning itself.
17. Don’t fall into the complexity trap - A well-trained eye is more effective than a stack of indicators. Some time Common sense is more valuable than a complex set of indications.
18. Don’t confuse execution with opportunity - Overpriced software won’t help you trade like a pro. Pretty colors and flashing lights make you a faster trader, not a better one.
19. Don’t project your personal life - The outcome of your trade is definitely likely to get affected by the situation at your home. Get your own house in order before playing the markets.
20. Don’t think its entertainment - Trading should be boring most of the time, just like the
real job you have right now.
Importance of Technical Analysis
Not Just for stocks
Technical analysis has universal applicability. It can be applied to any financial instrument - stocks, futures and commodities, fixed-income securities, forex, etc
Focus on price
Fundamental developments are followed by price movements. By focusing only on price action,
technicians focus on the future. The price pattern is considered as a leading indicator and generally leads the economy by 6 to 9 months. To track the market, it makes sense to look directly at the price movements. More often than not, change is a subtle beast. Even though the market is prone to sudden unexpected reactions, hints usually develop before significant movements. You should refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline.
Supply, demand, and price action. Technicians make use of high, low and closing prices to analyze the price action of a stock. A good analysis can be made only when all the above information is present Separately, these will not be able to tell much. However, taken together, the open, high, low and close refl ect forces of supply and demand.
Support and resistance
Charting is a technique used in analysis of support and resistance level. These are trading range in which the prices move for an extended period of time, saying that forces of demand and supply are deadlocked. When prices move out of the trading range, it signals that either supply or demand has started to get the upper hand. If prices move above the upper band of the trading range, then demand is winning. If prices move below the lower band, then supply is winning.
Pictorial price history
A price chart offers most valuable information that facilitates reading historical account of a security’s price movement over a period of time. Charts are much easier to read than a table of numbers. On most stock charts, volume bars are displayed at the bottom. With this historical picture, it is easy to identify the following :-
• Market reactions before and after important events
• Past and present volatility
• Historical volume or trading levels
• Relative strength of the stock versus the index.
Assist with entry point
Technical analysis helps in tracking a proper entry point. Fundamental analysis is used to decide what to buy and technical analysis is used to decide when to buy. Timings in this context play a very important role in performance. Technical analysis can help spot demand (support) and supply (resistance) levels as well as breakouts. Checking out for a breakout above resistance or buying near support levels can improve returns.
First of all you should analyze stock’s price history. If a stock selected by you was great for the last three years has traded fl at for those three years, it would appear that market has a different opinion. If a stock has already advanced significantly, it may be prudent to wait for a pullback. Or, if the stock is trending lower, it might pay to wait for buying interest and a trend reversal.
It is more important to control risk than to maximize profits!
There is asymmetry between zero and infinity. What does that mean? Most of us have very finite capital but infinite opportunities because of thousands of stocks. If we lose an opportunity, we will have thousands more tomorrow. If we lose our capital, will we get thousands more tomorrow? It is likely that we will not. We will also lose our opportunities. Our capital holds more worth to us than our opportunities because we must have capital in order to take advantage of tomorrow’s opportunities. It is more important to control risk than to maximize profits! Technical Analysis, if practiced with discipline, gives you specific parameters for managing risk. It’s simply supply and demand. Waste what’s plentiful, preserve what’s scarce. Preserve your capital because your capital is your opportunity. You can be right a thousand times, become very wealthy and then get wiped out completely if you manage your risk poorly just once. One last time: That is why it is more
important to control risk than to maximize profits!
How to know what to look for? How to organize your thinking in a market of thousands of stock trading millions of shares per day? How to learn your way around? Technical Analysis
answers all these questions.
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