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I can certainly speak from experience when I say that my largest loss ever resulted from the fact that I refused to take the loss when the time was right. I allowed a $500 loss to turn into a $5000 loss. Fortunately, that was the first and last time I was guilty of that serious a transgression. Unfortunately, many traders, a great many traders in fact, refuse to take losses when the time is right. Fortunately, the day trader has two opportunities to take a loss.

The first one is at the stop loss point as determined by a system or at the predetermined dollar risk stop. The second point is at the end of the day. A day trader is, therefore, fortunate inasmuch as he or she is forced to liquidate all positions at the end of the day. This will keep losses smaller than they would be if losing positions were carried overnight.

Here are some suggestions as to how you may improve your ability to take losses when they should be taken: 1. Formulate your stop loss rules very specifically. Do this whether they relate to systems or dollar risk amount, and type or write your rules in large print. Place the hard copy close to your quotation equipment, the computer which you use for trading, or the telephone from which you place your orders.

If you do not use a computer or quotation sysThe Psychology of Day Trading 20 1 tem for your trades, then please keep your rule handy on an index card and refer to it frequently during the day. 2. Make the commitment to accept your next 10 losses completely as dictated by your system. Once you have done this, the behavior will become habitual and losses will be easier to accept.

3. If you trade with a full-service broker or a trading partner, make your broker or partner aware of where your stop loss will be. Have them remind you that you must exit your position accordingly. You may wish to give them the authority to do so for you, assuming of course, that your relationship with them is sufficiently close to allow for such a procedure. 4. Place your stop loss.

A much more simple procedure, although I do not necessarily recommend it at all times due to the nature of day trading, is to actually place your stop loss as soon as your entry order has been filled. These suggestions will, I feel, help you master the ability to take losses in a timely and rational fashion. The Ability to Avoid Overtrading Too many day traders feel that they must trade every day. Let's face it, some traders are addicted to trading.

A day without a trade for them is like a day without a meal. The fact is that there are some days which offer few if any trading opportunities. The day trader who wishes to preserve capital and avoid losses as well as unnecessary commission charges should understand that day trading is not an everyday event. There will be days when no trades are indicated. Believe me when I tell you that things are better that way.

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