3 Dos and Don’ts Most Traders Learn the Hard Way from Market Wizard Mark Minervini

High-growth stocks that fall in value after you purchase them at a correct buy point do not become more attractive; they become less attractive. The more they fall, the less attractive they are. The fact that a stock is not responding positively is a red flag that the market is ignoring the stock; perception is not going in your direction. Maybe the general market is headed into a correction or, even worse, a major bear market.

For many traders, it’s tempting to buy a pullback because you feel you’re getting a bargain compared with where the stock was trading previously. However, averaging down is for losers, plain and simple. If this is the type of advice you’re getting, I suggest you get a new broker or advisor. This is simply the worst possible advice you can receive. Remember that only losers average losers.

Learn to Pace Yourself

When I come out of a 100 percent cash position, generally after a bear market or intermediate-term correction, I rarely jump right in with both feet. I think of each trading year as the opener of a twelve-inning game. There’s plenty of time to reach my goal. Early on, I take it slow with my main focus on avoiding major errors and finding the market’s theme. This is like an athlete warming up and assessing the competitive environment.

Themes can come in the form of how prices are acting in general, industry group leadership, overall market tone, and economic and political influences. I try to establish a rhythm and set my pace during this time. Like a golfer who has found his swing groove, once I find a theme and establish my trading rhythm, then and only then do I step up my exposure significantly. I wait patiently for the right opportunity while guarding my account. When the opportunity presents itself with the least chance of loss, I’m ready to strike. Patience is the key. My goal is to trade effortlessly.

If your trading is causing you difficulty or stress, something is wrong with your criteria or timing or you’re trading too large.

To trade with ease, you must learn to wait patiently until the wind is at your back. If you were going sailing, you wouldn’t go out on a dead calm and sit there floating in the water all day waiting for the wind to pick up. Why not just wait for a breezy day to set sail?