Tuesday, September 25, 2007

2 Simple Tips to Profitably Trading

Placing a trade is relatively easy; all you need to do is specify how many shares you want and puff all is done. But getting out could be a tricky task and this often time separate profitable trades from the non-profitable ones. So lets examine some simple tips for getting out.

Tip # 1

Stop Losses as the name implies is meant to reduce you losses so simply let them do the job. If you have placed your trade correctly with the proper risk-reward calculation you need not worry about what is happening, you won't be right all the time but if you cut you losses rightly you live to trade (your account in this sense) another day. The market never follows a straight line, most time there will be a test of previous highs or lows. Place you stoploss below the low or above the high allowing some wiggle room to avoid getting stopped out prematurely when those test occur.

Using this principle to set your stoploss will keep the emotion out of your trade and make you more profitable. Also you should not be risking more than 2% (at most) of you trading account on a trade (some will argue about 5% but I dont find that comfortable so I dont advice anyone to do it). Find a percentage that is comfortable and suitable to keep you in the game for long. Stick with it, this will help you psychologically to withstand whatever the market throws at you.

Tip # 2

As you are considering entering a position you should also consider target when to fold em . These targets should be logically placed, not based on wishful thinking remember market will do what it wants not what you want. Some ideal points to take profit include:

Previous Resistance or Supports

Pivot points (Resistance or Supports)

Trend lines

Moving Averages

Strategy-specific targets

Yeah, I know you should let your profit run. But the key to profitable trading is to take a part of the profit off the table at your initial target, after which you can consider other target levels. This could be done manually or by using automatic trailing.

The key points here are:

1. Stoploss orders are suppose to reduce you loss so let them do the job.

2. Place them properly and they will keep you out of trouble and make you profitable

3. Place your stoploss at logical point with some wiggle room

4. Take some profits off the table then trail you remaining position

Did you find those tips on stoplosses useful? Join the league of successful traders find out more here

I'm Lanre a Private Investor/Trader, Salsa Music fan/dancer, E-marketer, Info-System and Data Mining Researcher