You've heard of the power of positive thinking. The glass is half full. I'm all about optimism when it comes to life. When it comes to trading, however, you must think negative. Expect the worst!
Let me explain. When you see a possible trade setting up, you need to monitor your thoughts. Are you thinking about how much you are going to make on this trade? You shouldn't be. Your only thought should be how much can I lose if my stop gets hit. Is the stop .20 cents away. If so, how many shares should I buy so that if my stop gets hit my loss will still be within my personal tolerance.
Many traders only think about how much they can make and therefore give no thought to position size. That can lead to a very dangerous situation. Let's take a ficticious trader named 'Dukhiram' for example. If he is only focused on the upside of a trade, he might buy 5000 shares because he is expecting at least a .30 point move in his favor and 1500 profit sounds great to him. Sound familiar? It's easy for him to buy that many shares if he only expects a 'win'.
But what happens if the trade immediately turns against this 'optimistic' trader? Usually, the deer in the headlights look and an inability to react. If you have ever done this, you already know how damaging this can be....not only to your account balance, but perhaps more importantly to your mental state. Just one out of control trade can take you out of the game permanently. Have you ever damaged your account so bad that it takes you months or years to earn back enough money to trade again?
I know many people that fall into this category, myself included. I suppose I could look back on those days with regret, but I can't. I wholeheartedly recognize that without that pain early in my trading career, I wouldn't be the trader I am today. My first thought on every entry is the possible downside....EVERY TRADE. If I get a move in my direction, I pay myself quickly on part of the trade and get to a breakeven stop on the rest as quick as I can. This still gives my trade a chance for the 'accidental homerun' on the back 1/2. You will have very few losing trades if you do this, and the losses you do have will be small. So, if you want a positive trading experience, think negative!
Let me explain. When you see a possible trade setting up, you need to monitor your thoughts. Are you thinking about how much you are going to make on this trade? You shouldn't be. Your only thought should be how much can I lose if my stop gets hit. Is the stop .20 cents away. If so, how many shares should I buy so that if my stop gets hit my loss will still be within my personal tolerance.
Many traders only think about how much they can make and therefore give no thought to position size. That can lead to a very dangerous situation. Let's take a ficticious trader named 'Dukhiram' for example. If he is only focused on the upside of a trade, he might buy 5000 shares because he is expecting at least a .30 point move in his favor and 1500 profit sounds great to him. Sound familiar? It's easy for him to buy that many shares if he only expects a 'win'.
But what happens if the trade immediately turns against this 'optimistic' trader? Usually, the deer in the headlights look and an inability to react. If you have ever done this, you already know how damaging this can be....not only to your account balance, but perhaps more importantly to your mental state. Just one out of control trade can take you out of the game permanently. Have you ever damaged your account so bad that it takes you months or years to earn back enough money to trade again?
I know many people that fall into this category, myself included. I suppose I could look back on those days with regret, but I can't. I wholeheartedly recognize that without that pain early in my trading career, I wouldn't be the trader I am today. My first thought on every entry is the possible downside....EVERY TRADE. If I get a move in my direction, I pay myself quickly on part of the trade and get to a breakeven stop on the rest as quick as I can. This still gives my trade a chance for the 'accidental homerun' on the back 1/2. You will have very few losing trades if you do this, and the losses you do have will be small. So, if you want a positive trading experience, think negative!
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:rofl: