Worst Mistake A Stock Investor Can Make
The worst thing a stock trader can do is win the wrong way. Now some people may say a victory is a victory, but when you win the wrong way it will often cost you much more in the future. For example, on my first trade ever I made a significant amount of money. I took this trade because somebody had given me a tip on the stock. That trade happened to play out pretty much as the person had told me it would. This so called victory got me hooked on the stock market. I remember how excited I was when I closed out the trade and saw the money I had made. I felt unstoppable and could not wait to get into another position! Unfortunately, the next tip that I received did not work out so well; all of the gains from that first winning trade were completely wiped out. I remember feeling drained and somewhat depressed by the loss in the trade. Who wants to live like that?
Fast forward over 20 years from that day; now I will never trade off of tips, rumors, feelings or anything else. I simply trade off of the chart patterns which unfold every single trading day in the market. The chart patterns will generally point you in the right direction and allow you to keep probability on your side. The patterns that appear on stock charts will often repeat themselves since that is the footprint of human nature. If I’m fortunate to recognize the pattern correctly, I will make money on the trade with consistency. Please understand, not all chart patterns play out as expected and will sometimes fail. The good news is that when you use charts as a trader you will have a technical level for a stop out. The stop out should be viewed as an insurance policy against the trade. A technical traders stop out is usually between 2 and 7% depending on the chart pattern. If you cannot find a technical stop loss level, than it is best that you use a hard 10% stop loss. At least this will put a limit to what you are willing to lose on a trade.
Very often, I see traders win the wrong way. They make money and get very excited and happy. They become very anxious to jump into the next trade or investment. They simply trade the stock market like a casino and can’t wait to make a bet. Unfortunately, it does not take long for this excited and happy feeling to wear off when you lose on a trade. Simply put, when you win the wrong way it is only a matter of time before that victory will disappoint you. I see it happen to beginner traders and investors every single day. Learn to read the charts, get educated on the markets. Learn everything there is to know about a chart. After all, it is the money flow that really moves a stock, not someone’s opinion or anything else. In the chart below you will see a trade that I entered off of the pattern. This stock was downgraded by many large Wall Street firms when I entered the trade, yet I’m now in the money by over $6.00 on the play.
Nick Santiago
Chief Market Strategist
www.InTheMoneyStocks.com
