Spaf
Honorary Hall of Fame Member
- Reaction score
- 45
Ten Trading Survival Techniques
Acknowledgement: Trading for Dummies, Griffis, Epstein, Wiley Publishing, Inc., 2004
In the world of trading, most traders know that losses are inevitable. Survival techniques help to ensure that one will be around to trade another day.
I. Build a Trading Tool Chest.
- You need the right mix of trading software, hardware, and internet access to be successful. The right tools will identify trading candidates; display and interpret charts; research trading opportunities; screen stocks for technical or fundamental constraints; and monitor and analyze your portfolio, open positions, market indexes, sectors and trading statistics. Tools are the core to trading. Without the right ones, your success will drop dramatically.
II. Use Both Technical and Fundamental Analyses.
- Technical analysis is critical to find the right entry and exit points. Fundamental analysis improves your ability to make the right stock choices, given market and economic conditions.
III. Choose and Use Your Favorite Tools Wisely.
- Using too many (or too few) tools can be dangerous to your system and sanity. You will get mixed signals and wind up in analysis paralysis.
- Pick the top two or three trading tools. Be alert for new tools, but use caution before making changes to your winning system.
IV. Count on the Averages to Make Your Moves.
- Moving averages actually smooth out the data for you visually and help identify any trends.
V. Develop and Manage Your Trading System.
- A trading system will use your collection of tools created from technical and fundamental analysis to let you know when it’s time to enter or exit positions. This system needs to fit uniquely with your personality and trading objectives. One may glean the wisdom of others, but the management is your responsibility.
VI. Knowing Your Costs.
- Trading isn’t cheap! You need to keep tabs on trade cost, buy and sell cost and slippage cost (the difference between quoted and actual price). Bid is what they will buy at; Ask is what they are selling for.
- Keeping track of each buy and sell (shares and prices) of the same stock is about the only way of determining an average cost.
VII. Know When To Hold ’Em and When to Fold ‘Em.
- Knowing when to take profits (or except losses) and vacate a position can be among the hardest lessons. When you make a mistake, own up quickly, and get out. If the stock recovers, you can always reenter at a later time.
VIII. Watch for Signals; Don’t Anticipate Them.
- You don’t want to anticipate a buy signal before it is triggered. Then only to see the stock reverse and be forced to take a loss. See Bull and Bear Traps or failed signals.
IX. Buy on Strength; Sell on Weakness.
- You’ve probably heard this clique before. The reason for it’s popularity is a good one. It works!
X. Keep a Trading Journal and Review It Often.
- A loose leaf binder is probably best. Information is important both to you and the Tax man. The trading notes should contain, as applicable: date, symbol, shares, bought or sold, the system that triggered an entry or exit buy or sell, stops, cause for exit, percent gain or loss, economic factors and any remarks.
