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July 16, 2002
In our effort
to help you become a better educated trader, we would like to provide
you with some basic guidelines that many professional traders abide
by. If followed, they should help you better manage losses to perhaps
give you more time to complete your learning curve and become a
more successful trader.
Basic
Guidelines of Trading
- Take
your profit or loss: One of the most common mistakes is
not realizing when to get out of a trade. This can happen whether
the trade is moving in your favor or against you. If you enter
a trade and it immediately moves against you, do not keep the
position hoping it will come back. If the stock is not doing
what you initially had thought it should, take a small loss before
it becomes a big one. Vice versa, if the position has moved in
your favor, do not get greedy. Take your profit. You can also
set a higher stop or close half of the position to help lock in
what profit you already have.
- Do
not switch time frames: Prior to entering a trade,
know your time frame for that trade and stick with it. For
example: You are looking at ABC on a 5-minute chart. You believe
the stock is about to bounce a point or two on a micro time frame.
You go long 200 shares and the stock does the opposite of what
you expected in your original micro time frame. Do not stretch
the time frame of your trade and hold it overnight. Many people
will tell themselves, "Oh, it will come back." Maybe
it will, maybe it won't. The point is, in all trades, if your
expected outcome does not occur in your original time frame, close
the position and take a small loss rather than hold on to a losing
position.
- Have
your prices set: Before you even enter a trade, determine
your Entry, Target and Stop Loss prices.
The Entry Price is the price at which you want to
get into a stock; it is the predetermined price you believe represents
a good opportunity. The Target Price is where you
want to close the trade for a profit if the stock moves as you
originally planned. The Stop Loss price is the at
which price you plan to exit the trade if it moves against you
and represents the largest loss you are willing to take on the
trade. Also, as the position moves in your favor, moving your
Stop Loss price up to lock in a profit should increase
your success rate.
- Divide
your capital: You should never max out all of your resources
on one trade. In fact, you shouldn't come close to doing so.
Some conservative traders go so far as to divide their capital
into 10 equal parts, never risking more than 1/10th of their capital
on any one trade. This allows you to preserve the vast majority
of your funds if a trade moves quickly against you. You will also
be less involved in the trade emotionally, allowing you to "think"
more and "hope" less. Also, it is prudent to divide
your capital by setting aside a certain portion of your money
for low risk investments. Basically, you should not day trade
with all or most of your money.
- Do
not trade for the sake of trading: Make sure you have technical
and/or fundamental reasons to enter a trade. Do not buy a
stock just because the price is "low" or sell just because
the price is "high." You should never trade out of boredom.
You must have a trading plan. Many successful traders specialize
in just a few chart patterns; they know them inside and out. Usually
when they see one of their patterns form on a chart, they enter
the trade. They know what to do and how to react to most possible
movements in the stock. Do your homework ahead of time!!
Also, we invite
you to view the Mastertrader.com Direct Access Refresher Course.
To access the course, click on the following link: http://www.mastertrader.com/education.asp
and then click the Direct Access Refresher Course link just under
the Education heading (note - the link appears in small text). You
will then be asked for login information, which is as follows:
| User
Name: |
mastertrader |
| Password: |
master |
To scroll through
the presentation you can either left click on the presentation or
press the Page Down key on your keyboard.
Trading can
be very difficult, especially in volatile markets. However, with
discipline and education, you have a much better chance to become
a profitable trader. Follow the above guidelines, and do not hesitate
to contact us with any questions or concerns you may have.
For further
trading education please visit www.pristine.com
or call us to find out more about how to obtain a subsidized trading
education. Pristine offers numerous quality educational products
and services for all types of traders. Individuals that use the
Core Trading (investing) to the Micro Trading (day trading) approach,
and every approach of trading in between, can benefit from the education
Pristine.com provides.
Again, if you
have questions or would like more information on how to become a
more educated trader, please feel free to contact us.
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