3 Things To Check Before Taking ANY Trade
In the early days of my trading career, over 20 years ago, all I wanted was to always be in a trade. It was something exciting to do and I found it rather stimulating. I would constantly check the quote board to see if the stock was moving up or down. If the stock made a big move up I got all excited and giddy. On the other hand, when the equity went lower I recall how I felt the extreme opposite feelings; depressed and defeated. The truth of the matter is that I really had no business being in any of these trades because I was trading on hope and just gambling on the stock. As most of you are well aware, a gamblers mentality applied to the stock market is a surefire way to lose all your money in the end.
These days are vastly different from my early years in this business. I now go through an extensive checklist before entering a trade, one that I live by before even considering taking a trade. The checklist helps me make a clear and smart decision with my money, as opposed to just gambling with it. I will share that with you here so that you can improve your profitability and remove emotion from your trading as this will help you make decisions with a clear purpose.
Here are the top 3 things that every trader should check before entering a trade. This will certainly help to put the odds in investors or traders favor.
1. Check the trend! It is so important to see and check the trend of a stock. The strongest trends are when a stock is trading above the major moving averages such as the 20, 50 and 200 day moving averages. This alone will help you enter strong relative strength stocks and leave the weak equities alone.
2. Check for earnings! As a professional stock trader I will not hold a stock into its earnings announcement. While many people do, I simply feel that it is gambling. I cannot predict the reaction from the earnings report or conference call that follows the announcement. So I simply avoid trading a stock into earnings announcement. In my early years I would always hold a stock position into earnings but soon found out that one big loser would wipe out all of my other prior winners. In my opinion, it is simply not worth holding stocks into earnings.
3. Check for major resistance and support levels!. There are so many times when I see traders not knowing what type of support and resistance levels the equity they are trading might be running into. We can identify this by looking at a chart of the stock that we are trading. It is crucial to know if major support/resistance is in play soon or if it is minor. This takes some practice to fully learn and understand, but it is often the difference between success and failure. The bottom line, get educated on the charts as that represents the money flow in and out of a stock.
There are also lots of other important things that you can add to a checklist before entering a trade. These three checklist points mentioned are some of the most important that I use personally. Try it out and see how it works for you. As you get these down, then start to add in more factors as that will only increase your winning percentage and make your trading/investing career all the more enjoyable! I’m confident that by simply creating a checklist before entering a position you will help increase the odds of a successful trade.
Nick Santiago
Chief Market Strategist
InTheMoneyStocks.com