Online Stock Trading Questions That The Market Professional
Don`t Want You To Ask
No matter what your reason is for picking a stock; a trend,
technical analysis of charts, or company fundamentals, there are
some fundamental online stock trading questions you must answer
before making a trade. Answering these questions should be an
integral part of your decision making process, and should occur
on every trade you ever make. The question that I am going to
discuss in this article is almost self-explanatory. As a trader,
you have to ask yourself, is there a compelling reason to
believe this trade will work?
Before buying any stock, you must be able to articulate a solid
reason why you believe the stock`s value will rise in the
immediate future. If you`re shorting, you must have a good
reason to believe its value will drop. Some traders get into
positions for reasons that have no logical basis. I`ve actually
heard people say they bought stocks because they `wanted to see
what the stock would do,` they `like` the company, they think
the stock is `due for a breakout,` or they think that it would
be `a fun stock to own.`
`Wanting to see what a stock will do,` sounds a lot like
gambling. Throw some money at it and see if you win or lose.
There is no place in online stock trading for a gambling
mentality. As for `liking` a company, that`s a bit naive. The
company doesn`t like you, and its management and board of
directors don`t like you. They have no idea that you even exist.
Emotions should never be the basis for making a trade. It makes
no sense to `like` a company. Companies exist to make money for
their shareholders; your goal is to identify trades that you can
make money from.
Finally, some traders buy beaten-down stocks that they think are
`due for a breakout.` There is no rule that says that a company
which has performed poorly in the past will rebound. Companies
go out of business every day - nothing says a company has to
return to profitability or its stock price has to rise. You
should keep this fact in mind.
If you always use sound reasoning to pick stocks and have a good
reason for each trade, you will greatly increase your profits.
And there are other benefits as well. For instance, you`ll be
much less inclined to purchase a stock impulsively or to get
into a play on the basis of a `hot tip.` You should never make a
trade unless you absolutely believe it will be a winner.
Some trades may seem stronger than others, so put more money
into the strong ones and less into the weaker ones, but never go
into a trade not knowing whether it will work. Why would you
make a trade that you think won`t work? You won`t always be
right, but at least you`ll be following convictions that are
based on logic and reason, and will be able to analyze your
trades if they go against you. This will allow you hone your
technique and your understanding of the market, to make every
trade better.
And, because some trades won`t work out, always set stops on all
trades. This will keep you from losing significant sums on the
trades that go against you. You should always employ sound money
management principles when online stock trading. But, before you
set your stops and take your position, know that you have a
sound reason for thinking each trade will work.
David Jenyns, leading expert in designing profitable trading
systems, offers a huge free collection of trading related tips
and tricks. http://www.tra
ding-systems-review.com/blog/