Money Management Tips for Stock Traders

Managing money wisely is one of the most difficult aspects of stock market trading to master. It refers to all the nitty-gritty detail work you have to do to make all your trades work together as a successful portfolio. It's not always easy, and it's not always fun, but it's crucial to coming out of the game with profits on the table.

There are four basic components to money management for traders: trading, allocating, recordkeeping and minimizing costs.

Trading

Most people end up holding losers too long and selling winners too early, leaving them to wonder what the secret of trading is. But the best traders know that one of the "secrets" to trading isn't really a secret at all. It just means ensuring that your gains outweigh your losses. To do this, you can't rely on fortune-telling, market-timing, or plain dumb luck--you need to follow a trading plan.

Believe it or not, it becomes stressful for people to have stocks that actually move up fast. Take GSS, for instance. It was in the upper $2s or low $3s, and then it shot up to the $4s. That meant a lot of gains on the table. But it actually caused panic. The same goes for a stock that goes down quickly.

That's where Trending123 comes in: We actually give you a stock trading system. All you have to do is follow it. How? Easy: Use the Trending123 Portfolio Table. It makes money management simple with a color-coded system of trading instructions:

1. Yellow means the setup has triggered the entry price and action can be taken.
2. Green means target has been hit or a profit alert has been issued.
3. Red means a stop loss has been hit or a stop alert has been issued.
4. Blue means the entry price has not been triggered but it's close, or as I like to say, "on deck," so stay tuned and be ready.

All you need to do is wait on alerts and direction, and remember that nothing is ever set in stone. We always have a trading plan, but trading plans, like the market, are not static. We have to revise them sometimes according to market conditions and new positions that we take on. Since the market is constantly evolving, we need to have the flexibility to change and modify our trading plans to accommodate the changing risks.

Allocating

When it comes to losers, we all know what to do: hold. It's winners that we have the biggest issues with--because we're not used to a lot of them. So let's talk about investment portfolio management and the word "dumb."

First and foremost, no position should ever be more than 5% of your investment portfolio. People get into the biggest trouble when they hear someone excited about a stock or are excited about it themselves, and they think for sure it's going to skyrocket. They think, "It's got to go to the moon, because did you not hear how he talked in that update? It's a surefire winner!"

But even though the majority of positions in a portfolio may be winners, some will be losers. This calls for strategic asset allocation, meaning that you can't allocate too much to any single position. Poor asset allocation is a sure way to ruin a portfolio of winners.

But why did I mention the word "dumb" at the beginning? That's simple: because from this point forward, we will never be as dumb as we are right now. Five minutes from now we're going to learn something new. And that makes us smarter. Tomorrow we're going to learn more. And that's going to make us even smarter. The next day you're going to learn even more. And we're going to be even smarter.

So as far as dumb goes, we've officially bottomed as the human race, because tomorrow, and the next day, and the next day, we're going to keep learning new things. But don't forget what you have already learned, because the last thing you want to do is make dumb moves in your portfolio management.

Recordkeeping

You can trade year in and year out without ever violating the rules of allocation, but if you don't keep track of what you're doing, you won't know if you've actually made progress. A simple way to do that is to keep a trading journal.

In your daily journal for stock trading, you should note all the information relevant to each trade you make. Your trading journal template (how it's formatted) is up to you, whatever works best for you--but it's important to keep it consistent and organized for easy reference and comparison.

Here are some things you should note in your journal:

1. Why did you buy a stock?
2. Did you have any issues with holding the stock as you waited for it to reach price target?
3. Why did you exit the stock?
4. Did you made a profit or a loss? And how much?
5. After all, if you don't know what you're doing right, you can't develop the skills you already have. And if you don't know what you're doing wrong, you could end up blaming "bad luck" instead of correcting bad habits.

Knowledge is power. Even better, knowledge is profits. Especially if you're going into technical analysis.

Minimizing Costs

When it comes to trading, you can't ignore costs. Whether it's ongoing expenses of an ETF or commissions you pay to make trades, costs always reduce your overall return. And just like with returns, you can't just look at the dollar amount of costs--you have to look at the percentage. After all, the smaller your portfolio, the more trading costs will hurt you.

For example, let's say each trade costs you $7. If you pay $7 to buy $100 worth of stock, your cost to initiate the trade is 7% of your principal. And if you pay another $7 to sell it, your cost to close the trade is also 7%. So your total commission costs are 14% of your principal ($14/$100), meaning you have to make at least a 14% profit in that stock just to break even. Those sure aren't very good odds.

But let's say you put in $1,000. The $14 you spend for one round trip in and out of the stock is only 1.4% of $1,000, giving you much better odds.

And now suppose you could trade for free--that would give you the best possible odds. Impossible, you say? Not at all:

Read More

The Money Show Las Vegas, May 12-15, 2008, at The Mandalay Bay Resort & Casino is your best opportunity to learn how to manage your portfolio during these questionable, economic times. Hear from world-class experts in more than 220 FREE workshops where they will give you every opportunity to prepare yourself for the uncertainty that may lie ahead. Also, visit the exhibit hall and meet over 200 exhibitors face-to-face and evaluate the latest tools and software--all designed to help you profit in 2008. Register today-- it's FREE!

Meet face to face with top investment experts - expand your understanding of the markets in over 220 sessions presented by the leading experts on investing

• Discuss ideas with fellow investors - some of the best investment ideas come from other attendees, so talk to your fellow market enthusiasts about their strategies

• Explore the investors' mega-marketplace - representatives from over 200 of the top financial product-and-service providers, publications, funds, and publicly traded companies are all under one roof to answer your questions

• Fine-tune your portfolio - use our new workbook of investing questions to focus all of the intelligence you've gathered at the show into an effective game plan for boosting your profits

• Gain more independence - you'll consider specific, timely recommendations, but you'll also learn the strategies, skills, and resources that can make you an confident investor

John Lansing Speaker Schedule

Message Board Post

JL,

Thanks for going the extra mile and getting the STV update out and online early. Alot of information in one update...truly one I hope everyone reads at least once (or maybe 8 times)! I noticed it this morning before 7am AST/11am EST (Sat) so got a jump start on my weekend "homework".

I know you had a lot to get organized for you trip to the Money Show so was very pleasantly surprised to see an update for Sunday already in place.

Wish you the best in Vegas and look forward to any reports from the Money Show that we may receive.

Linda

Trading is a mirror of almost every aspect of your life. If you are thinking or behaving in an undisciplined or unorganized way when you are not trading, you will trade in an undisciplined and unorganized manner. Without discipline and rigorous attention to detail, you will not be able to trade successfully. This is also true if your personal life and relationships are not going well, as you will not be able to give complete focus to your trading and you will fail.

If you spend a lot of time daydreaming about making a financial "killing" that will take you away from your internal suffering, you are trading on hope and you will fail. Take the time you spend daydreaming and turn it into something which will make you stronger, such as rigorous exercise, yoga, meditation, centering and clean, healthy eating. This is a marathon, not a sprint and it takes strength and endurance and good health to stay the course and win the race.

If you are depressed, hypomanic, hung over or rely on substances to alleviate your anxiety or medicate your feelings, you are in a situation where your brain chemistry is altered to the point where you cannot make logical trading decisions. If you do not feel good about yourself, if you lack self-confidence and a winner's mentality, you set yourself up to lose. This is not a conscious decision, and you might never admit it to yourself...BUT...when you are down, depressed or going through real life struggles, you will do things to punish yourself just to re-affirm that you really are worthless and deserve to suffer. The unconscious desire to fail is every bit as powerful as the conscious desire to succeed. Get in touch with that dichotomy at all times, and you will see a side of yourself that you never knew existed.

Treat each trade as a possible winner or a possible loser. There is absolutely no such thing as a "sure thing" in trading, Trading is a game of probability, and the goal is to make more than you lose. If you are in a strait jacket of perfectionism where everything has to work all the time, and you have to get just the bottom or just the top, and you cannot tolerate even one downtick, let alone a drawdown, then you are not suited to be a trader. Good traders know that you only get one opportunity in your life ( if you are inordinately lucky) to pick the exact bottom or the exact top of traded entity. Strive for moderation and balance, and eschew perfectionism, as it will be one of your greatest enemies.

Never make a trade in a market that just completed a major move if the only reason for making the trade is that you just saw a major move and missed it. Do not chase and always let price come to you. The market offers opportunity every day, but most are blinded by it, as the Market Mistress can be very harsh, and does what she can to deceive, seduce and unbalance you.

Winning traders and losing traders experience the trading environment differently. It makes them feel different and as a result their actions vary in a consistent manner. In psychological terms, they interpret the market differently because they have a separate belief system in the way that they see themselves relative to the stock market. Change your belief system from the reactionary emotional beliefs of most losing traders to a more proactive unemotional approach of a successful trader.

Know when NOT to trade. This skill is just as important as knowing when to pull the trigger. Part of being a great trader is being a keen observer of what a stock is telling you. By committing to observe objectively, you give yourself permission not to trade until the conditions are right.

Don't trade for excitement or entertainment. Avoid the highs that come from quick profits or the lows that can appear after losses. If you have a sound system, it does not matter whether any particular trade makes a profit or a loss. What matters is that the probabilities over time are in your favor. You must remember that no system is perfect, and prepare for losses along the way. You should measure yourself on whether you followed your rules and executed your system, for both winning and losing trades. The process of trading is much easier when you focus on execution of a system rather than on whether each individual trade was right or not, because you take your ego out of the process. This makes you more rational and less emotional, which leads to better investment performance.

It is critically important to protect your psychological capital by not overtrading or playing for excitement instead of profits. This can cause you to be emotionally "drawn down", and sit there in exhaustion and despair, usually as a move just begins that could have been a big opportunity. Yet you miss the new big trend because you were financially and emotionally eroded by overtrading in a tough market. As a result, you can't see through the negative emotions because you feel beat up by the markets. Managing your internal psychological state of mind is equally important as managing your financial position.

Be careful not to overreact to intraday news and the endless stream of cacophony which comes to you through your eyes and ears every day. As 2002 showed, there were many whipsaws where the opening occurred in one direction but was then reversed with a close in the opposite direction. Make preparations for each day's trading in advance after the previous day's close, so that you have some idea what the market structure looks like heading into the next day's trading. This allows you to move from a reactionary state to a more proactive posture, and position your mindset to capitalize on news-driven intraday volatility. Ignore 99% of what you see and hear during the day, and focus on your positions and your trading plan.

Accept total responsibility for the results of your trading. Even if you authorized someone else to trade on your behalf, or took the recommendation of someone, it was you who made this decision - nobody forced you. Remember losers always look for somebody else to blame. Winners look to themselves--- particularly if they have to take a loss on some trades, as is inevitable for all traders and all systems. When you accept total responsibility, you commit that in any market environment you will find the way to win.

There is so much more that I want to tell you, but time is short right now. I will write more later.

Just remember this: You will ALWAYS feel the most fearful when you should be the most greedy and vice versa. If you are watching every tick, hanging on every piece of news and noise that comes to you through the media, vacillating on a minute to minute basis between fear and greed, in a state that you cannot sleep or are in terror, or so elated that you know your position will just keep going up and up, you really need to get a grip and GET OVER YOURSELF! Sit down, take stock of yourself, ask yourself why you made the trade, why you bought, why you sold, why you did not sell, what your plan was, what your fail-safe strategy was, etc. Look to yourself at all times. YOU are more powerful than you will ever know. YOU can be a successful trader.

YOU can learn to ride the waves of the market and hold yourself firm and steady in the most turbulent times.

YOU are the master of your trading destiny. YOU CAN DO IT!!

Learn More

The Rules of Trading Part 2: There Are No Bad Days

Part 1 of this series on the rules of trading described why there are no rules except the ones you make for yourself.

Now that we've established that there are no rules but our own, allow me to elaborate further in Rule #2: There are no bad days in the markets. I can hear the jeers coming up at me as I write this. "How can you say that, Doctor Janice? Every day seems to be a bad day for me because each time I enter a trade it goes against me. My winning trades are not making enough because I get out too soon. I am getting killed with commissions. What is good about losing?"

When you put on a trade, there are three things that can happen:

1. You win
2. You lose
3. You scratch (or break even)

When faced with any of these three situations, people will generally find a reason to complain. The winner will be upset that he didn't win more, the loser will be angry that he lost, and the person that breaks even will be irritated because he's out the commission costs.

In other words, the states of happiness and satisfaction are not common among traders. Traders are human beings that always want a different outcome in order to feel that they have been successful. If we were to really scratch the surface of a serious trader, we would find very few that are ever satisfied or happy with the way things are going for them in the markets.

When we are stuck in this condition of insatiability, we lose sight of the primary reason for trading. Most would say that we trade to make money, and that cannot be denied. However, the really great traders will tell you that making money is a byproduct of executing their plan consistently and with discipline. Built into their plan is winning, losing and breaking even. These three outcomes are part of the process of trading and must be factored in on any given day in the markets. Every day in the markets is a fabulous day for traders that have learned how to win, lose and break even in a seamless manner.

Since it's almost always those who lose that feel the worst, it is good to focus on the process of losing to understand why there are no bad days in the markets. As with every profession, it is important to understand that learning is a process and think more deeply about what we consider failure or error. We must make mistakes in order to learn from them. If we don't, we'll continue making the same mistakes day after day.

There are many benefits to losing if the trader is able to detach emotionally and take a rational approach to the process. This means that the outcome is losing, but the process is learning.

Great advances in science always come through repeated trial and error. There are no great breakthroughs in any profession, despite what you hear about so-called "overnight success." Outstanding performance and great scientific discoveries come through trial and error until the desired result is obtained. Each error brings with it the possibility to learn, strengthen and improve. Learning from mistakes and then correcting them as we try and try again is the way that we advance, both as traders and as human beings.

Great traders use the process of losing to inspire them. They are not restrained by failure; rather they are motivated to push forward, to learn more, to study harder and to be more disciplined. Literature and pop culture are replete with stories of great artists, athletes and performers who overcame intense setbacks, sometimes to the point of becoming suicidal, who then rise up and reclaim their strength.

Robert Downey Jr., who struggled with drug addiction for years and was finally sent to prison for repeated offenses, made a heroic comeback this weekend. His movie, Iron Man, grossed over 100.75 million dollars in three days-topping the estimates of 70-80 million dollars-and setting a record for being the second-highest weekend gross for any domestic non-sequel movie. Robert Downey Jr., left for dead and a "has been" by his colleagues and the world, made a heroic comeback!

This example speaks to the role of inspiration through failure. He could have just as easily slithered away into a corner and lay there as everyone beat up on him and called him a sick, hopeless addict. He turned losing into winning, and winning into winning big. Just as with Downey, Jr., the trading literature is filled with stories of traders who lost millions and came back to win millions more. They used loss to inspire success.

Many great traders have used their failures and losses to motivate and teach themselves and others, often in a most poignant manner. When traders ask me what books to read, I always tell them to read biographies of and interviews with other traders. These stories can be powerful in terms of inspiration and courage to persevere when all seems lost. It is the stories of losing and recovering that motivate us to become better traders. It is our own losing and the drive to recover that pushes us through every day.

There are no bad days in the markets because we use every day to learn, challenge ourselves, grow, and make us stronger and more courageous and set examples for others. If we look at each day as an opportunity to make our light shine brighter and our trades better, we know that there are no bad days. There is only the opportunity to improve and learn so that tomorrow will be better.

Embrace your losses; don't run from them. Use your losses as learning experiences to inspire and motivate you to find a way to better opportunities and trading successes. I encourage you to look at losses as part of the true recipe for your trading success. There are no bad days in the markets if you are on a steady learning curve, so stay with it. The best is yet to come!

Light tomorrow with today...Elizabeth Barrett Browning

Until Next Time,
Good Trading and Brain On!

Janice Dorn, M.D., Ph.D.

Read More

Priceline.com was no shock to Trending123.com subscribers or anyone reading this blog!!

Shares of Priceline.com (PCLN) have spiked nearly 15% in premarket trading after the company reported a 130% jump in earnings per share over one year ago. If premarket gains hold, the stock will establish a fresh 52-week high.

Priceline reported first quarter earnings of $0.76 per share, which was $0.16 better than the consensus estimate that stood at $0.60. Revenue rose 41.2% year-over-year to $403.20 million versus the $377.17 million consensus estimate.

The company also topped its previous guidance. First quarter gross travel bookings increased 76% compared to last year, versus the company's guidance of 60% to 65%. Pro forma gross profit increased 74.7% year-over-year versus the company's guidance of 55% to 60%.

The online travel company expects to continue its winning ways. Priceline said it expects to earn between $5.25 and $5.65 per share for the full year, which is well ahead of the $5.12 consensus estimate.

It broke out of an Ascending Triangle mentioned back on this update back on April 18th so the question to ask yourself why aren't you seeing what I am seeing or are you?

Full Report

Message Board Post

Hi John

Thanks much for the options portfolio addition. It has done well for me and I appreciate having it since I don't have a great deal of money to invest in the market.

Rusty

In this lesson, we want to give a brief overview on how options are priced.

Option contracts:

When you decide to purchase options, the first thing you need to realize is that you can't purchase a single stock option, you can only purchase option contracts. Each option contract consist of 100 options. The price listed on the options page will only provide the price of a single option and you will need to multiply that single price by 100 when you decide to buy a contract.

Option pricing:

As we discussed in the previous section, when you purchase an option you are not buying the actual stock itself, but simply the right to buy or sell the stock. As such options prices are substantially lower than the price of the stock itself.

There are a number of factors that are used to determine the value of the option. This includes the following:

1. The intrinsic value of the underlying stock. Obviously the more in-the-money the option is, the more expensive it is.

2. The volatility of the stock.The more a stock swings up and down in a short period of time the more volatile, "the greater the volatility - the higher the option price."

3. The amount of time purchased before the stock expires. For example, if you purchased an option that expires in two months, it would cost more than an option that expires in one month.

4. The dividend paid by the company is a important factor.

5. The interest rate (3 month T Bond) also plays in the pricing of an option.

Bid and Ask Spreads:

For real short term option plays you must choose options with small spreads between the bid and the ask. When you decide to buy an option you will be given two prices the "Bid" and the "Ask" price. The Bid, which is the lower of the two prices, is the price you will receive per option if you decide to sell your contract at that particular moment. The "Ask" is the price you will have to pay per option if you decide to buy the option on that stock. Note: As mentioned previously this is only the price per option, you will have to multiply that number by 100 when you buy an option contract.

There are numerous Options plays available to an Option Trader. These include Covered Calls, Covered Puts, Bull-Call Credit , Bear-Put Credit, Straddles, Strangles, Collar, Leaps, etc. Education is essential and understanding the risk factor of Options and their rewards is of most importance.

Technical Analysis Really Just Studies Supply And Demand In A Market NASDAQ, QQQQ, $IIX, $NWX, $SOX, $BTK Why My Targets Are So Much Higher!

The MOST Powerful Pattern Update..............Learn More

Fibonacci Retracement

A term used in technical analysis that refers to the likelihood that a financial asset's price will retrace a large portion of an original move and find support or resistance at the key Fibonacci levels before it continues in the original direction. These levels are created by drawing a trendline between two extreme points and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%.

Fibonacci retracement is a very popular tool used by many technical traders to help identify strategic places for transactions to be placed, target prices or stop losses. The notion of retracement is used in many indicators such as Tirone levels, Gartley patterns, Elliott Wave theory and more.

The Fibonacci sequence of numbers is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. Each term in this sequence is simply the sum of the two preceding terms and sequence continues infinitely. One of the remarkable characteristics of this numerical sequence is that each number is approximately 1.618 times greater than the preceding number. This common relationship between every number in the series is the foundation of the common ratios used in retracement studies.

The key Fibonacci ratio of 61.8% - also referred to as "the golden ratio" or "the golden mean" - is found by dividing one number in the series by the number that follows it. For example: 8/13 = 0.6153, and 55/89 = 0.6179.

The 38.2% ratio is found by dividing one number in the series by the number that is found two places to the right. For example: 55/144 = 0.3819.

The 23.6% ratio is found by dividing one number in the series by the number that is three places to the right. For example: 8/34 = 0.2352.

For reasons that are unclear, these ratios seem to play an important role in the stock market, just as they do in nature, and can be used to determine critical points that cause an asset's price to reverse. The direction of the prior trend is likely to continue once the price of the asset has retraced to one of the ratios listed above. The following chart illustrates how Fibonacci retracement can be used. Notice how the price changes direction as it approaches the support/resistance levels.

Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. If you understand the benefits and limitations of technical analysis, it can give you a new set of tools or skills that will enable you to be a better trader or investor.

Full Update

Message Board Post 05/06/08

T123 is the most comprehensive trading site there is. If you are new to the market or if you've trading a long time, the value is incredible. The tools, scans, alerts, updates, ongoing support and training- amazing!

Primarily an options trader, I have applied John insight to my personal plan and have tripled my total portfolio since joining in October. Many thanks.

AmandaB

Message Board Post 05/06/08

JL,

I just wanted to add my thanks to you. Not just the options but the underlying as well. Becuase of your work I'm on the right side of this move.

Ed

U.S. ISM Services Index Unexpectedly Rises

The U.S. service industries for the month of April unexpectedly expanded, according to a report released on Monday in Washington.

The Institute for Supply Management's non-manufacturing index rose to 52.0 percent in April, compared to 49.6 percent registered in March.

"The service sector has been a positive force in the economy and will continue to offset weakness in the goods- producing sector," Julia Coronado, senior U.S. economist at Barclays Capital Inc. in New York, who forecast a reading of 50.5, told Bloomberg.

"This is definitely a positive indication that some of the worst outcomes that people are expecting won't be realized."

The market analysts had expected the measure to contract for the fourth consecutive month in April led by the housing market slump as well as credit crisis.

Economists had projected the ISM index for April to come in at 49.8 percent.

In April, the ISM's business activity/production index was 50.9 percent, compared to March's 52.2 percent. The new orders index was 50.1 percent, compared to 50.2 percent the prior month.

The Tempe, Arizona-based ISM's report of non- manufacturing index plus the manufacturing index and the government's employment report last week, shows that the U.S. economy may be gradually improving.

While, twelve of the 18 industries included in the group's report were expanding for the month of April, led entertainment and real estate, according to MarketWatch.

Message Board Post 05/05/08

Hi JL,

Your option plays have been incredible. I'm in DRYS and a three or four others. I watched DRYS bump up against the short squeeze trigger of $89 on Friday afternoon and then blast through. It was absolutely parabolic after that! I can't wait until you add the feature to your site which allows you enter a ticker and find the short squeeze for other stocks.

Thanks for your powerful website and guidance!

Orelindel

Message Board Post 05/05/08

John

I want to thank you for the option plays, and the great profits I now can't wait for Mondays, I never thought I would say that The trading room is so fun to be in.

Cheers

Asjeff

Message Board Post 05/05/08

John

I would like to say Thank You For providing a very unique hands on way to learn the ins and outs of trading stocks and options by using technical analysis.

Jeff

Message Board Post 05/05/08

John:

This is a great educational opportunity which I am taking full advantage of. Your knowledge and ability to provide a "fair and balanced" view of what's happening is particularly valuable.

Everyone else in the world seems to be pushing an "agenda" but you seem to be telling us the truth! ...regardless of marketing.

Keep up the good work on the web site...particularly on the new options addition.

YOU DA" MAN!

Moe

Message Board Post 05/05/08

JL,

Thanks so much for the option plays ....560% profit in ten trading days is definitely "sudden profits" (JNPR)!

Into DRYS option on 4/30 and already up 113% ... love earning while learning.

Many thanks,

Lana

1. Wanderers get lost. Setting out on your first foray into financial planning and investing without a well-planned investment strategy is like going on a cross-country road trip without a map. Taking the time to develop a well-thought out investment plan (includes your financial goals, personal goals, risk tolerance, available investment amount, etc) will help protect you from trendy, and often risky, speculation.

2. Passion fizzles. People are fallible and, more often than most like to admit, they make decisions based upon their emotional reactions instead of facts and research. Doing your homework will pay off in the long run.

3. This little piggy...Novice investors too often forget to take profits from stocks that continue to rise in value. Remember, what goes up must come down eventually. Do your research (maybe using some stock analysis software or an online trading service), read the professional analyses, and take your profits before you lose them.

4. Diagnosis: Analysis paralysis. Novices beginning investing in the stock market tend to "overdose" on information, becoming easily confused, overwhelmed and indecisive. If you're on information overload, rely on the advice of your broker (if they offer it) and trusted resources such as Trending123.com

5. Few Pots of Gold. Don't enter into the trading arena with a "get rich quick" mentality. While you may have success in trading, the most successful traders know that successful portfolio development is a bumpy roller-coaster ride. The market is volatile. If you don't have the stomach for it, look for the lowest risk possible.

6. Enter at your own risk. A common misconception is that "low-risk" equals no risk. This is simply not true. Risk can be managed, but you must realize that it does exist with every trade. A well-researched trade can minimize the chance of a negative outcome, but you are always taking a risk.

7. Sleeping on the job. Many novice investors jump out of the gate strong, but their initial interest wanes over time. If you don't have the time, or conviction, to regularly monitor your investment, rely on financial investment services and advice from professional investment counselors. Or, invest in established, well-performing mutual funds.

8. Many eggs, one basket. Remember the old adage "Don't put all your eggs in one basket?" It holds true for investments as well. The truly successful investor has diversified investments to offset the ups and downs of the market. Spread your investments to increase profit potential and decrease loss potential.

9. Rumor has it. Novice investors are too often looking for an advantage in the wrong place. Don't make trades based upon a "tip" from your neighbor or brother-in-law. Conduct your own research, consult your investment advisor and be sure the facts support the "tip" before you make your decision. Relying on tips alone can get you into financial trouble quickly!

10. Surplus Shopper. Never invest money that you can't spare. Yes, you could make a killing in the market and triple your investment; but you can just as easily lose it all. If you can't afford to lose it, you can't afford to invest it.

Learn More

One of the most difficult aspects of trading in today's market is handling your emotions. For many months, we have struggled through a market and an economy that seem intent on remaining an emotional yo-yo. To say "don't get emotional" is pointless. Everyone is emotional about money. Money is the last great taboo and it associated with a myriad of emotions.

So what can you do about your emotions as they apply to trading and investing? Of all the books and papers I have read or written on Trading Psychology, there is one aspect that stands out most clearly to me. That is the challenge of living in the past, and I believe that this is one of the most significant obstacles to trading success.

Why? Because the brain remembers. The brain imprints ( through neuronal circuitry) loss or gain on the temporal lobe memory area ( see simplified diagram of the brain), and generates fear or greed as a result of it. The larger the loss or the gain, the greater the neuronal imprint becomes. Large losses are manifest as fear and large gains are manifest as greed. Both are equally destructive to further success with trading.

The real culprit is long term memory. It is the memories of the large losses or large wins which stay with the unsuccessful trader and cause continual sabotage and inability to move forward.

The best traders forget about a loss the minute they take it and move on. They are confident in their system and their ability to execute it. It is not about the money for these people. It is about finding a system that will bring them more profits than losses. The best traders know how to take losses and not become depressed, angry, jealous, disgusted or defeated. They know how to take gains without gloating, boasting, cha-chinging ( and you all know how I feel about that word) or becoming outrageously happy. They only see the trade they are about to enter---not the trade that just ended. All past trades are out of sight and out of mind.

NEXT!!

MOVE ON!

If you cannot do this, you will fail because fear and greed will lead you down the wrong path

So what do fear and greed have to do with forgetting about the past?

Fear doesn't form in a vacuum. It is a learned response to a particular event or probability. In the case of trading, when you have a trade that goes bad, the regret and frustration can carry over into the NEXT trade. Or worse, the fear is so consuming, that you don't enter your next trade. Of course, Murphy's Law dictates that the trade you don't enter is the one you should have entered, which only compounds greed (and frustration). This particular problem is fueled by the expectation that every trade you enter should be profitable. If you truly believe that, then here is an important piece of information for you - not every trade will be profitable!

Greed creates the opposite problem. With a couple of consecutive winning trades, the ego can enlarge and feeling invincible overcomes being logical. This will ultimately lead you to trades that you normally would not have entered. Finding good trades is hard enough, while finding poor trades seems to get much easier after a couple of winners. Never mistake genius for a little luck.

There is a critical difference between 'being emotional' and 'being blinded by fear and greed'. "Fear blinds us to opportunity; greed blinds us to danger - emotions cause 'perceptual distortion' where we only see the part of the picture that our beliefs allow us to see."

It's important to recognize your emotions, and more importantly, how they affect your investing and trading approach. In general, we all want to be bullish, and are eager to see any upward market movement as a rally, even when it's not. Simultaneously, after a volatile beginning for the year we are all somewhat gun-shy right now, especially in the face of mixed messages. Regardless of your current opinion, you are better served by feeling with your heart, while investing with your head. Are fear and greed driving your investment decisions right now, or are you in control of your emotions? If you're not sure, I'd recommend taking a step back and looking at the market from a different angle......an unemotional one.

Read More