Being prepared

Make a list of everything that can go wrong and determine how you will respond to that situation. That will be the key to your success – knowing how to respond to the unexpected.”

Van Tharp

Ask 3 essential questions:

1. Why am I taking this particular trade? ( is it part of carefully prepared plan, or is it an emotional reaction; what is the catalyst behind the move and does it have the potential to sent the stock’s price higher; are there other better trading alternatives for my money)

2. What if a am wrong? (figure out where and when I will exit, before I initiate the trade; where is my stop loss and does it makes sense to be put there; how much am I risking? How am I going to protect my capital against “unexpected” gaps)

3. What if I am right? (how am I going to protect my profits; where I would exit and why)

Remember that good trading is all about managing risk. If you are entering a position without knowing where you are getting out when you’re wrong, then you’re sunk before you begin.


Trend following

“The crowd may be stupid, but they are stronger than you. Crowds have the power to create trends. Never buck a trend. If a trend is up, you should only buy or stand aside. Never sell short because “prices are too high” — never argue with the crowd. You do not have to run with the crowd — but you should never run against it.

Dr. Alexander Elder

Trends

“Remember that stocks are never too high for you to begin buying or too low to begin selling. But after the initial transaction, don’t make a second unless the first shows you a profit. Wait and watch.”

Jesse Livermore

It is one of the great paradoxes of the stock market that what seems too high usually goes higher and what seems too low usually goes lower.”

William O’Neil