Trading in tough times

Let's pause for a while and think about the events happening right now. The only words you hear these days are bankruptcy, take over, rescue package, jobless claims, and so on. Lehman goes bust, Washington Mutual taken over by J P Morgan, AIG almost going bust if not rescued, Merril Lynch gone, Investment Bankers become house cats.

What can a trader do at such times? Well, the answer is definitely not in black or white. Never keep an open position without a stop loss. Do not expose yourself to a huge loss. At the same time, volatile times are best for making profits once you set a good stop loss order. Make money but at the same time, play safe. It is definitely possible.

OK, today lets look at the kind of approach that gets the pros the kind of money they earn.
Five Steps that Pros follow to Make the Most of their Trades

1. Do analysis take a position
2. Keep a smart stop loss. Stop loss triggered ? You're out of the position. The position goes in the direction you predicted ? Move to step 3
3. The market is communicating that you are right, in that case, add to the position.
4. Trail the position with smart stop losses.
5. Out of the position only when your stop gets you out.

Psychology vs Tools

More important than the tools, equipments, news is one's psychological or personality make-up. In the long run, the most experienced traders realize the battle is only against onself. The more you polish yourself, the more profits pour.One of the first excercises i teach my trading students is just to toss a coin every day and take paper trades: heads you Buy and Tails you sell. After that is the important part. How you hold on to winners well and cut out the losers early. Adding to winners is an art that comes much later.But this in itself is a perfect profitable package.

More on Trading Emotions

Confidence
Without confidence it is not possible to achieve much in other streams of life. In the equity markets, it is doubly true. If you lack in self-confidence, doubts may creep up in your mind. This may lead to indecision, which in turn lead to missed opportunities and losses. For day-trading and short interval trades, confidence is of utmost importance.On the other hand, on down days be careful. In many instances, you may be tempted to book small profits just to make your day balance sheet look pretty. This is not the issue. When you are faced with loss-making trades sooner or later, that same daily balance sheet will not look pretty at all.Never be far away from the correct principles of trading no matter what your mind is tempted to think. It is just too painful to reinvent the wheel.
Discipline
In order to be a successful investor/trader, you must be very disciplined. Stick to the plan of action. This means that you will stick to trading policies, trading plans and so on. Know your objective and work accordingly.
Ideas
Do not seek to implement new ideas that come all the time during markets. Remember, ideas are just ideas. If you feel there is value in them, they have to be thought about, refined, tested and then brought to the trading room. If you try to implement new ideas immediately to trading all you will do is to erode capital and confidence.
Hope
Do not allow hope to loiter anywhere close to your trading system. Hope has the potential to do maximum damage to your capital.