(Stocks) Steal Warren Buffet`s Stock Market Lesson Plans?
Why should you want to steal someone else`s stock market lesson
plans?
First, let me tell you that a trading plan is only useful if you
follow it. Following your plan will make you successful, yet
many traders circumvent the stock market lesson plans that they
have carefully created. They become emotional invested in a
trade, to the point where they ignore all warning signs.
Remember, when the market corrects itself, which it always does,
no position is immune, no matter how strongly your ego may be
tied to it.
Many investors have stock market lesson plans that watch as
their portfolio values are cut in half or more, yet they will
still hold their positions. They may fear being left out of a
big gain, or be so deep in loss that they felt they couldn`t
possibly sell at that point. But even if you believe that all
positions will recover from their losses, and the truth is that
not all of them will, this is a terrible way to trade.
You tie up too much capital, and your rate of return plummets.
Just as you shouldn`t become emotionally involved in a trade,
you should also never become tied to ideas. By this I mean
becoming so fond of a particular strategy or trend that you
cling to it even after it has stopped working. You need to have
strategies, and to have plans, but you must also be aware of the
shifts and swings of the market, the beginning and the ends of
trends.
When you first form your plan for a trade, you should consider
what price or price range you think the stock is likely to
reach. This is often called a target price, which gives some
traders the wrong impression. A target price is not a price that
the stock has to meet. A stock does not have to do anything. If
you treat your target price as a goal, it can lead to many
problems. Your target price should only be used as a guideline.
The target price helps you figure out your risk to reward ratio,
and it gives you an exit point in your trade. At the least, it
should give you a point where you`ll reassess the trade`s
ability to continue to moving upward. But your trade may never
reach your target price. Many market factors can interfere with
its progress, and you may have set your target higher than you
should have. Since there`s no way all your trades will hit your
price targets, it is a good idea to sell half your position at a
more conservative target. Routinely taking profits will reward
you in the long run.
There are a number of things that can interfere with a stock`s
movement and force you to close your position sooner than you`d
anticipated. Your stock market lesson plans should cover all of
these possibilities, but here are some reasons that should
always prompt you to close a position:
1. The end of a trend. All trends end some time, and you should
be prepared for this.
2. The stock`s upward movement has slowed or been abruptly
broken, ending its momentum.
3. The stock is approaching a major psychological barrier,
perhaps reaching 100 dollars or 200 dollars a share, which
should have been anticipated in your plan
4. The stock is about to reach a resistance level it has been
unable to break through before. This technical barrier should
also have been anticipated in your plan.
5. A sudden market wide decline, or the threat of one, or some
other serious uncertainty, which leads to unsafe market
conditions.
Exiting a losing trade is not a big deal. Ending a position
whether or not the stock reaches its target price, in accordance
with your stock market lesson plans, is good trading. The best
traders would rather lose a small profit than take an
unnecessary risk. You don`t have to win on every trade; no one
does, and it`s dangerous to try. In fact, by limiting losses, a
good trader can be profitable overall, and make money on only 40
percent of his trades. Cut your losses and start fresh with
something else when you need to. You`ll be happier, and you`ll
make much more money.
Discover BIG profits from the market by downloading your FREE
copy of David's new Ultimate Stock Trading Systems course. http:/
/www.ultimate-trading-systems.com/stocks.html