No Need To Always Hit A Home Run
One of the biggest mistakes new traders make is always attempting to make the next trade the trade of a lifetime. They risk a fair amount of their account balance on a single trade hoping this will be the trade that delivers a new Ferrari or vacation home in Hawaii. This is absolutely the wrong way to approach trading. Over the course of your trading, you are going to encounter trades that, in baseball terms, are just singles. They're winners, but there was no signal to back up the bus and risk more than usual on that particular trade.
There's nothing wrong with trades like that and if the maximum number of shares you can trade per position is 1,000, having some winners with 500 or 600 shares is fine. Remember that even the best home run hitters also strike out a lot and just as a strikeout definitely isn't good in baseball, it can be detrimental in trading as well. In other words, hitting some singles and doubles is what's going to keep you in the game and position your account to allow you to eventually swing for the fences.
Know Your Risk Before You Trade
The key to being a solid, conservative trader, not an overly reckless, aggressive trader, is knowing your risk BEFORE you put the trade on. Aggressive traders that lack discipline will throw the same share size or dollar amount at every trade with no thought to the consequences. The conservative trader says "I've got $10,000 in my account, therefore I'm willing to accept a loss of two percent or less on this next trade." Other conservative traders may set a stop loss order for 10 cents (or another arbitrary amount) and if their stop gets taken out, they're fine with that because they didn't lose a lot of money.
What we're saying here is being conservative pays dividends in the long run. You're going to have losers. It's just a fact of life, but by keeping your losses small, you keep more ammunition around to get aggressive later.
When Do You Get Aggressive?
This isn't an easy question to answer, especially for traders that are conservative by nature, but a starting point may be after you've been trading for a few months and you've noticed your conservative model has helped you pad your account. You now have some confidence and some cushioning to absorb a large loss and you want to try to milk a trade for more money than you have previously.
So what do you look for? Make sure the indicators you use are confirming the emergence of a strong trend. If you're going to increase your risk, you want to be on the right side of the trend. For example, let's say you're trading stocks and the market has been up all day. There's about two hours left in the trading day and you've been watching ABC Inc. inch its way up all day. The sellers have been weak and then you see a fresh wave of buying come along with increased volume. This is an ideal setup for you to put on aggressive long trade. The stock is strong, the market's strong and the odds are on your side. This would be a "smart-aggressive" play.
Lean Toward Conservative, At Least To Start
Getting aggressive is about gaining experience and comfort in your chosen asset class. No, you don't want to be so conservative that you're cutting good trades short, but you don't want to be so aggressive that every trade has you walking on eggshells either. That's the great thing about experience. The more you have, the better you'll understand when to swing for the fences and when to just try to get on base.
Article Source: http://EzineArticles.com/?expert=Max_D.
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