Thought that we all needed something on the fun side to read for the weekend in between those football games starting up, "Girls"..
Stocks aren't dogs!
They're more like cats.
Because stocks don't come back when you call them
and neither do cats. The most common way investors
and traders lose money is because they don't cut a
loss.
I know, I know, everyone says their "cardinal rule"
of trading is to cut their losses and let their
winners run.
But you know how it happens.
You do a little homework, find a stock you like, or
maybe you're lazy and play picks from chat rooms or
stock picking services.
Anyway.
You buy a stock in the morning, it starts going up
and you're feeling good. Hey this trading stuff is
easy!
Then you check the quote at lunch and it's still
up. Now you're feeling great. You call home to tell
your wife/husband the good news. "Honey, I've got a
hot one!"
You get home, check the quote after dinner and it's
down a bit but you're still up overall on it.
Next day the market is down and the stock is back
down to where you bought it.
Now the first thing you say is "Maybe it's just
moving around some."
The next day the stock opens down three points and
you say:
1) I'll sell now.
2) I'll sell it when it comes back.
3) I'll hang on and see what happens.
And the survey says:
(drum roll please)
2) I'll sell it when it comes back.
Why does this happen?
It's perfectly natural and as common as a cold.
First of all, it happens because people hate losing
money. By not selling, you don't have to book the
loss. More importantly, losing money triggers fear.
Fear is a powerful emotion. Fear of loss is greater
than most people's desire for gain. But then, just
as soon as you feel the tingling of fear you start
rationalizing away.
You say, "I'll sell it when it comes back. I've cut
my losses too quickly before only to watch the
stock come back and I'm not doing that again. It's
like the stock knows as soon as I get out and then
it starts going back up. No way is that happening
to me again."
"I'm smart, I have a degree, I'm not going to get
scared and sell now." (Read - "How the hell am I
going to tell my wife/husband about this one? One
more loss and she'll/he'll make me quit trading").
But you know what happens: what started out as
small turns into a $6,000 loss and now you're
losing sleep.
At this point you're feeling the pain and you
either get stubborn and lose more or throw your
hands up and say "Screw it, I'm done with this
sh**" ... and you sell it.
Fear turns to anger.
To make matters worse you show up for work the next
day and have to listen to some guy ramble on about
the home run he hit in the market on some Internet
stock.
Anger turns to frustration.
You KNOW people are making money trading because
you see for yourself that stocks are moving all
over the place and you don't want to quit but you
can't handle this stuff anymore. If that describes
you then here's what you need to do ...
The solution isn't finding a
better stock picking service on the
web or buying new charting software.
The first part of the solution I'll give you right
now. If nothing else it will help you sleep at
night.
First of all get any and all emotion out of your
trading. You do this by writing down your
risk/reward parameters BEFORE YOU GET
IN ANY TRADE!
Most people don't even know why they bought a stock
in the first place. They'll say "because I think
it's going up." No kidding. Then what? It goes up
then they don't have a clue when or why to sell. So
they have to deal with their emotion AFTER they
already own the stock and have a profit or a loss
and that's exactly the time you don't want to be
dealing with your emotions because it will cloud
your judgment.
Ever watch "The Price Is Right?"
A housewife from Iowa has just won a new washer and
dryer and Bob Barker is standing there asking her
if she wants to risk it on "Door number 1." The
poor woman is so overjoyed right now she couldn't
decide whether she's on foot or on horseback and
the audience is screaming "Door Number 1" and she
turns to her husband and he's yelling "Take the
washer and dryer and sit your ass down."
So she stands there wringing her hands while Bob
Barker presses her for an answer. That's not the
time to make a decision.
We're playing "The Price Is Right", but just a
little differently.
Before you get in a trade, write down the price
you'll sell it at if the stock drops and the price
you'll sell it at if the stock rises. Set your
upside limit at twice your downside limit because
you have to let yourself make more than you'll let
yourself lose. After you buy the stock, enter your
stop (see the last email I sent you on how to do
it).
By writing down your risk/reward parameters on
every trade you won't have to make decisions
grounded in emotion. You will have already made the
decision while you had a cool and level head -
before you got in the trade.
The rest of the solution is learning how to get in
the right stocks and why. You could figure this out
on your own but the "tuition" is very expensive.
The investment of becoming a Tricks Of The Trade
Member is way less than learning to do this
yourself.
You can buy a $29.95 book from a guy who's likely
an ex-broker or investment advisor (in other words,
somebody who knows nothing about trading), and get
no personal help at all.
Or you can get your information from somebody who's
going to spend an hour on the phone with you when
you need help - somebody who has put the food on
his family's table from his trading profits. Paid
his mortgage and put the clothes on his kid's back
from money made trading, (not to mention funding
his wife's shopping trips).
You probably have $5000 to $500,000 in a trading
account right now, or you wouldn't be on this list.
You want to make that grow. It's EXPENSIVE to learn
how to do this by yourself, or by picking up a
random book at Barnes & Noble or Amazon.com.
You should be TERRIFIED if you are making winning
and losing trades and DON'T UNDERSTAND *WHY* the
winners are winners and why the losers are losers!
That lack of control should frighten you because
this is your own hard-earned money on the line.
I'm embarrassed by most of my so-called
competitors. It's a shame really. They do more to
add to the confusion and frustration than anything
else.
Not mine, wish it was;
Rg |
