Hello traders – Let me tell you a quick story. It’s about a trader that once passed through an office where I was trading. This trader jumped right in and on Day 1 made $10k! Sounds awesome, right? Yeah, well not so much. This gentleman had no trading plan, no strategy and no plans to keep a trading journal. What’s more is at the end of that day he said “man, this is easy, I’m gonna kill it.”
Something was killed all right – last I checked the market is still alive and kicking. So what happened to this trader? How could he have such a great start and then be out of the business in less than 3 months?
Well, let’s start off with his first day. Basically, he got lucky. He loaded up all his buying power on one momentum stock that happened to have a strong trend day. Now, I wish the best of luck to all of us but luck alone will never make for a successful trader.
Can see you the glaring problem with his actions on Day 1? He put all of his buying power in ONE stock. One stock had the ability to make or break him on that day. That’s called gambling, put it all on black and let the wheel spin.
A single stock should never consume more than 10% of your buying power. There are several reason for this, one of which is even if a trade completely blows up in your face it will not put you out of business.
Additionally, this trader had no strategy. How was he going to replicate what he did on day 1 then next day and the day after that? Where and why would he enter a stock, where would he exit. He basically bought a hot stock at the start of the day and exited it as the market was about to close.
If that was a long term viable strategy wouldn’t we all be doing it? I know I would.
A trading plan, consisting of criteria for entering a trade (candlestick patterns, support/resistance, etc.) need to be in place to recognize and profit off of good trading setups. If you do not have a specific trading strategy with a detailed trading plan it is nearly impossible to make money trading the market.
For step by step direction on building a trading plan and creating a trading strategy take part in the Active Trading Blueprint found here: http://tradingeducationblogs.com/active-trading-blueprint-course/