The Hidden Secrets of Successful Stock Market Trading Rules – Fine-tuning Your Stop Losses
There are two cardinal successful stock market trading rules that I am sure you are quite familiar with by now.
The first of the two most common stock market trading rules are to cut your losses short. The second of the two most common successful stock market trading rules are to let your profits run. However, you can take it one-step further by fine-tuning your trailing stop losses, and becoming more risk seeking once your stock is in profit. Increasing your risks, at the right time, can allow you to get all the profit you possibly can out of your system. You may wish to test the effects of these successful stock market trading rules by having a wider trailing stop loss than your initial stop, and see how this is reflected in your system.
For example, you could set your initial stop loss at two ATR but set your trailing stop loss as three ATR. This allows the stock, once it`s in profit, a little bit more room to move. You`re still limiting your risk at the beginning of the trade by keeping a tight stop loss; however you`re going to become risk seeking in a profitable situation. That is to say you`ll be willing to risk more once you`re already in profit.
Trading Expert Discovers Ways To Beat Stock Market Odds With Money Management
The first point to mastering money management is that you have to understand when you’re trading on the stock market is that you are playing the odds – but unlike many forms of gambling, you can make money. The key to making this money is to respect the risk that is part of the market, and manage it. Money management is a set of rules and guidelines that enables you to turn a profit. By being triumphant with your money management skills, you can keep your risk at a level at which you’re comfortable with, keep from making poor trading decisions, and ensure you don’t loose your trading capital. This is why it is so important to follow money management rules.
Why do these money management rules work? You know, it’s funny. I once thought I had a fool-proof way of making money on roulette. You see, I’d bet on red and black. I’d sit at the table. After the ball had landed on black or red five times in a row, I would start betting on the opposite color.
Position Sizing to Maximize your Stock Trading Returns
Of all the aspects of stock trading, one of the most difficult is deciding what size position to open. Unless you are using a strictly mechanical system that explicitly defines your trade size, figuring out exactly how much of your hard earned cash to ‘put on the line’ can be extremely hard to decide. Rules of thumb such as ‘never risk more than 5% of your portfolio’ are fine, but may leave you in the dust on fast moving days. As we here at www.traders101.com would say, faint heart never won fair lady, yet look before you leap! Oftentimes, what looks like an average trade starts to run away as the stock market climbs, and you end up wishing that you had taken a large position. And conversely, if you get it wrong, you can end up banging your head against your computer screen and wishing forlornly that you had been a little more ‘prudent’ in your trading size.
Not to worry. There is, in fact, a fairly simple formula you can use to determine the correct position size for your stock trades, as long as you are looking for long term growth. Known as the ‘Kelly Formula’, this is a useful little equation that is simple to understand, and simpler to apply. You will need to have done some trades before, and have the stats at hand (the ratio of your winners to losers, and the size of those winners and losers). Lets say that ‘WP’ means ‘Winning Percentage’ and ‘WL’ means ‘Historical Average Win Size divided by Historical Average Loss Size’. The ‘Kelly Formula’ is then:-
Successful day traders stay neutral
Copyright 2003
Staying neutral means to be emotionally detached from your day trading decisions.
Neutral to gains and losses
You probably know guys for whom the world sucks if they take a loss of $100 and if they make $1000 they are on top of the world. They are definitely not neutral.
If you are like that, then your day trading will almost certainly be driven by fear and greed; if you are down $100 you probably don’t want to take a loss, just because you know that you will suffer emotionally. If you are up $1000 you might want more, even though you should just take profits. Or you might end up taking profits way too early because you are afraid that the position might turn against you. This is not good day trading.
The professional day traders don’t let the day-today oscillations in their account faze them. The results of one week don’t matter much, not even the monthly results. It’s just a small blip of time in their day trading career. The day-to-day oscillations actually don’t matter much.
Bollinger Bands Revealed
Bollinger bands are an integral part of just about every charting system I have ever seen but many traders are unfamiliar with how to use them. In this lesson we will cover the basics of Bollinger bands and one particular technique which I have found to be very reliable.
History
Bollinger Bands were invented by John Bollinger as a means of determining what could be considered as high or low around a give price.
The bands are plotted at a standard deviation (statistical term for measuring volatility) around a moving average. Typically the standard deviation used is 2.