This Is The Only Way To Survive In Today’s Markets–Part 2
Editor’s Note:
Please join me in welcoming Steven Primo to TradingMarkets. Steve is a 26-year
veteran of Wall Street. He currently heads a private investment partnership,
where he is General Partner and head trader. Previously, Steve was a 9-year
Specialist for Donaldson, Lufkin and Jenrette (DLJ), one of the premier firms on
Wall Street. I’m sure you’ll enjoy reading his daily commentary.
Brice
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In my
previous column, I spoke of the importance of trading with a plan. I
used the analogy of the market being a river, sometimes flowing smoothly and
other times raging. You, being the trader, are faced with the task of trying to
maneuver your way along the ups and downs of the waterway, similar to canoeing
downstream.
Let me give you another
scenario. The only difference is that this one has probably happened at least
once to most equity traders. How many times have you been long a stock, with a
nice little profit to show, when some brokerage house or financial commentator
downgraded the issue? Or perhaps some unforeseen news came out concerning
interest rates or earning estimates? What happened? Within minutes, you saw your
once-imagined secure profit turn into a disastrous loss. What appeared to be
working out in your favor for days–possibly weeks–has in just a few moments
presented you with a gut-wrenching decision — should I sell now and take the
loss or continue to bite the bullet and hold on? What do you do now?
Because of this emotional
overload, most traders wind up selling just at the precise moment they should be
buying, and vice versa. I’ve seen it happen a million times, and I must admit
that I’ve been no stranger to this scenario. Trading with a plan or “system†can
prevent you from ever having to succumb to making trading decisions based on
fear and greed. Â
The main advantage of trading
with a plan is that you will never be confronted with the problem of
having to ask yourself “What do I do now?†That question must never come up
during the course of your trading/investing. You should be readily prepared for
anything–positive or negative–that occurs during your trade. Questions such
as: 1) How and when should I enter the trade? 2) At what price do I enter? 3)
How do I protect myself if the market moves against me? 4) How do I protect my
profits if the market moves in my favor? 5) How do I exit? These should all be
answered well before the trade even takes place
The formation of a sound,
organized plan will not guarantee success, but at the very least will allow you
to come back and trade another day. And you will never again have to nervously
ask, “What do I do now?†Good luck and good trading.
Steven Primo      Â
P.S. Join me for an intense 14-week swing trading program in which I’ll teach
you six statistically-backed systems.
Click here for the details.