After teaching traders for a while you get to start to notice typical trading patterns. I see a couple of traders been battling with the effects of their emotional trading decisions and not taking the time out to look deeper into the cause of their behavior. There are underlying layers of thought that make us see and act in certain ways.
Three basic mistakes
Apart from the dark deep subject of trading psychology there are three basic mistakes I see again and again.
First is overtrading. That is, committing too much to a trade. If you commit too much to a trade it will have you doing the emotional trading dance which is not very graceful — getting up and down looking at the price every two minutes — basically poking the trade with a stick. This can force you to take emotional trading decisions which are not rational. A good author to read on this is Mark Douglass. If you would like more information on specialists to assist you in coming to grips with your underlying trading thoughts and how to change them, email me for details.
If you overtrade, then you will probably tend to place stops too close to the market trying to limit losses. The problem with this is that you get flicked out of the main trend. It is far more sensible to trade within your financial boundaries. To get this in perspective I recommend the author Van Tharp. He outlines correct position sizing and risk management as you need to get time on your side and understanding risk management will assist. If you work outside your risk parameters then it’s only a matter of time before your account will be in disrepair. Less is more.
Thirdly trading in corrections without any understanding of them is dangerous. If we have been making money in the old friendly trend and have left with profits, we tend to have become attached to that stock and will re-enter it again for no real reason except that it’s been a good friend.
technical analysis of stock market.
July 31 2010 11:44 am | Uncategorized