A Winning Approach to Trading in the Stock Market

Many traders lose simply out of ignorance. They base their trades on hunches, news, or tips from friends, and do not define specific risk and profit objectives before placing trades.

Others have the merit of educating themselves but fall victims of their emotions. They hold on to losing positions hoping they will turn into winners and sell winners by fear of losing a small gain. They overtrade to fulfill a need for action or by fear of missing out.

The consistent winners follow a winning approach:

• They have a strategy to enter and exit trades
• They use good money management
• They take consistent actions, they follow a trading plan
• They keep good records so they can review their actions
• They avoid overtrading
• They have a winning attitude

A strategy to enter and exit trades

You need to a strategy to put the odds in your favor for each trade you take. Your strategy should be as objective as possible and include the following elements:

• Entry: conditions required before you can enter a trade – may include technical analysis, fundamental analysis, or both.

• Initial stop loss: price at which you will close the entire position if it does not go in your favor. The risk per share is the difference between the entry price and the initial stop.

• Initial price objective: price at which you will take some or all profits if the trade goes in your favor.

• Trade management: set of rules that dictates your actions while a trade is opened. It may include trailing stops, closing position, etc…

For every action you take, the reason should be clearly described in your strategy.

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