Find Clarity….Then Enter a Trade

Risk management is as important when opening trades as it is when exiting trades. Once started on the wrong path, mistakes and errors seem to follow naturally, setting in motion an emotionally driven comedy of errors that results in inevitable loses. Positions that are opened based on confusion or a lack of clarity generally result in a continued abandonment of risk management and discipline. For this reason, the rules you follow to determine what stocks to trade and when to trade them are critical. Choosing low-risk-high-reward spectrum trades will be the focus of this important chapter, since once a trade is opened for the wrong reasons, such as tip, media hype, chat room manipulation, good old-fashioned greed, or the perception that prices are cheap, following the rules for exiting trades will be increasingly difficult. What is the state of mind of traders when opening a trade? The answer is that most amateurs when opening a trade have a level of exuberance and excitement with delusions of grandeur to make big money. Unfortunately because of this excitement stage, far too many trades are opened based on something other than clarity and good rationale. The emotional swing from exuberance to fear and denial is often too much to deal with for the ill prepared who open trades without clarity and supporting data. The likelihood that the rules needed to exit trades will be followed is highly unlikely. Exuberance hindered good behavior when entering the trade; fear and of the abandonment of discipline will be as damaging financially as it will be emotionally, and that paints a grim picture for fledgling new trader.

Next Level Trading