If you learn one simple rule, you can easily eliminate crippling losses and begin booking consistent trading gains.
You can use this rule to separate yourself from the ranks of the unsuccessful traders and join the select few that are able to grow their accounts year after year.
But first, you need to find out what’s keeping you from making money in the stock market…
Traders who have a set of personal trading rules–and those who just throw money at random stocks in the hopes of hitting a big winner.
However, trading isn’t that cut-and-dry.
In fact, there are plenty of smart, educated traders who can’t seem to make money in the markets.
A couple of weeks ago, I told you why you’re losing money in the stock market. I don’t mean the occasional losing streak, either. I’m talking about an issue many beginning traders face: the inability to consistently win and grow their trading account.
I told you that what you don’t know about the markets isn’t the problem. It’s not about a lack of knowledge or missing a market cue that could have saved you from your losses. And it’s not that you’re trading the wrong stocks. Or that you’re trading the right stocks at the wrong time…
The truth of the matter is many traders just like you are losing money because they are not mentally prepared to make the correct decision with every trade.
When I say every trade, I mean every single trade. That means winners and losers. The trades where you book huge gains, and the trades where you just break even. If you only learn one trading rule, this should be it:
Consistently growing your brokerage account is completely dependent on your ability to stick to a trading plan and make the right choices.
Let’s go back to the notion that there are only two types of traders. On the surface, there’s a lot of truth in this claim. Most traders probably lose money, while a few are able to turn their trading into a profitable enterprise.
But if you dig a little deeper, you’ll find that there are a couple of different losing traders. The first type is obvious: the stock market gamblers. This group is usually made up of the rookies who are lured to stocks by the promise of “sure things” and easy money. Without thinking for a second about money management, these traders place huge bets on random stocks. They don’t set stop losses. They refuse to admit to themselves they’re wrong about a trade, so big losses are inevitable. Gamblers don’t last long in the markets. Unless they change their system and mindset, these traders will quickly blow up their accounts.
The second type of unsuccessful trader is more difficult to spot. Famous trading psychologist Mark Douglas notes that the traders in this group are unable to make the correct decisions necessary for consistent success. A trader in this second group probably knows a lot more about the markets than a gambler. He understands basic trading strategies. He’s even able to string together a series of winners. But according to Douglas, this type of trader has issues when it comes to sticking with his trading plan.
Here’s what I mean…
Let’s say our trader sells a position for a substantial gain. It’s his fifth winning trade in a row–and he’s made several thousand dollars in just a few weeks. This is where the trouble starts. Our trader (who is now flush with cash) spots an ideal setup. He decides to trade the stock–but he risks twice as much as he normally does because his recent winning streak has increased his confidence. When the trade moves against him, he is reluctant to sell because he’s so sure the stock will recover and move higher.
Finally, when the losses become too much to bear, he sells his position. Unfortunately, the mistake wiped out the gains from his five previous winning trades. Now, our trader is back where he was weeks earlier. Even after experiencing a string of successes, he’s not making money.
If you find that you trade like the trader from our example, there’s a quick and easy fix that can transform you from trader who churns his account to a consistent winner…
Remember our one rule: you have to make the right choices with every single trade. If you obey your stop losses nine times out of ten, you will eat away at your profits. If you make a big bet on trade because you’ve had a string of winners, you’ll inevitably suffer a painful loss that will prevent you from growing your account. It’s as simple as that.
You can’t be a prudent, disciplined trader Monday through Thursday, and then gamble on Friday. That’s not how a successful trader operates. If you improve your discipline and remember this one rule, you’ll dramatically improve your results.
Source: The Penny Sleuth