Saturday, January 18, 2014

Fear and greed

Knowing your entry and stop is good because now you know how much you stand to lose if the trade does not work out. This minimizes fear in the trade since we fear what we do not know. Knowing and accepting the potential loss before entry reduces this. Knowing the target price is also a way to minimize fear. If you have identified the highest probable turning point for price and marked that as your target, you are less likely to be fearful and exit on small corrections on the way to that target. We cut our winners short because we are fearful of any adverse movement in price. Knowing where the high probability reversal point is allows you to ignore "speed bumps" that are only minor pullbacks in price.The second thing we can do to maximize our winning trades is to have a trailing stop system in place. By trading with a rule-based system, we are trading on logic and not emotion and are more likely to have success. There are several options for a trailing stop system and none is perfect. Having a system is an advantage, as I mentioned, to remove emotional trading. In our courses at Online Trading Academy, we teach our students many ways of creating this system and have them practice in class with real trading accounts to see which method is best for their own trading.
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