What i believe when it comes to trading

These are just my thoughts and i would like to share on the funny things about trading. It may sound senseless to you but i hope that someone do agree about it or felt the same way like i do during the course of learning and starting to trade stocks using your own hard earned money.

1. Praying doesn't help...what goes up will come down and down and down

I always fall into this trap when i was new to trading. Being ignorant, whenever a particular stock price goes in the opposite direction, there is always a mindset that i should hold and wait for the best. This stock will eventually rise and make profits. When weeks passed and months approached, i started praying. God, please make this stock rise, i will stop humiliating my brother and treat him nicer. Just when i couldn't wait anymore and seeing that my funds are depleting, i got out with huge losses when i could have lose lesser if i got out earlier. To add more salt to the wound. God answered my prayers too late and the stock shot up the ceiling while i continued to lick my wounds and cursed myself for not holding... If this sounds familiar to you, welcome to the club. You are not the only one.  My suggestion to such situation is to put a stop loss or give yourself a tolerance level, how much are you willing to lose.Set that level and sell when it is reached. Pick yourself up and carry on trading. Dont give up.

2. Ask if you are not sure!!

Throw out your ego when trading. Don't always think that you are right and worst of all, do not "Assume". Ask someone for help whenever you are not sure on how to trade, i have seen people blindly keying wrong figures and instead of buying, they short sell. Imagine the amount of losses you could make if you do not verify!! 

3. Don't impule buy because your friend says this stock is a runner

Would you go to war not wearing your protective gear or fight your enemies without carrying your weapons?! I hope your answer is no... Just like war, you need to arm yourself before buying a particular stock. Have you done a analysis or a simple study of the company? Have you taken a look at the chart? Fundamentally is it sound? Technically is it right? If you are not sure of what this company does, don't even do a impulse buy. I would rather miss this opportunity than to lose money without making preparations.

4. Crying over spilled milk (You lost money in a trade)

Get over it! So what if you make a mistake, who doesn't! Look at Bush, he's doing fine...wounds will become scars, they heal eventually.

The Wonders of Risk Management Tools!

Over the span of 10 years, i have been trading my stocks based on fundamental and technical analysis tools (Do watch for these postings on how i trade using fundamental and technical analysis). Although the results were great, but they take up alot of my time as you are required to study the trends and company financials to understand or predict where the stock will go. I am not sure whether this is familiar to you but have you always constantly check the price of your stock during your office hours, lunch hours, toilet break hours?? If your answer is a 'YES', then you are not alone. But i gotta tell you this, its not good for the heart. Therefore, i decided to find another method to trade, a method that allows me to sleep soundly at night, concentrate on my work and toilet breaks and lastly one that there are no requirements for me to constantly track my stock trending AT ALL TIMES... Some useful trading techniques which i find very useful include:

Using Risk Managment tools

• Stop loss
• This is a strategy to prevent further losses if your stock goes opposite from your expected direction. By placing this order with a broker to sell a security when it reaches a certain price. Therefore a stop-loss order is designed to limit an investor's loss on a security position. I find this useful because it serves as a safety net.
• For eg. Current stock price is $1, i predicted that it could rise up to $1.50. So i bought 10 lots for $10000. But i was wrong, stock drops to $0.50 on the third day, i loss $5000 ($10000 - (10 lots x $0.50)).
• What if i put a stop loss at the same time when i bought the stock?Again, I bought the stock for $1, this time i put a stop loss for $0.70. Stock drops to $0.50, but i cut loss at $0.70. I only loss $3000($10000-(10 lots x $0.70)). One good thing about this is you don't even need to monitor your stock all day.
• Trailing Stop loss
• Similar to stop loss but with a twist. This order is set at a percentage below the market price and the trailing stop price will be adjusted as the price fluctuates. Eg. Price of stock which you bought is gaining momentum, but you want to hold on to it as you believe it will go even higher.  You are unable to monitor your stock all the time and you constantly fear the stock will slide to the opposite side due to unforeseen events. Therefore you set a trailing stop loss of 20%(This depends on your risk level, how much you are willing to lose), everytime a stock fluctuates, you are given the assurance that as long as the stock drops to your trailling stop loss of 20%, it will sell the stock for you. Therefore limiting you to a loss of only 20% at all times. 

Besides the abovementioned 2 methods, there are quite a few risk management tools to use. But to attract you to continue reading my blog, i will post the other methods at later periods. Hope you are excited about it. This blog is basically a sharing blog,if possible,  i would like to appeal to everyone to comment about the methods or contribute their own methods. By learning from each other, we will be better equipped to tackle the sophisticated world of trading!

Disclaimer

All blogposts are strictly for information only and may not be suitable for your financial needs or goals. Please conduct your own research or consult a qualified financial advisor to assist you. The author will not be liable for any inaccuracy.