Never enter a trade without having a disciplined plan. Not a hope or a gamble, but a rock-solid PLAN. The plan must include the following:
1. Know WHY you are entering this trade before you enter the trade. In other words if you are not at least 80 percent confident the trade will go in your anticipated direction, don’t enter the order.
2. Know at exactly what price you are allowing The Master to enter you into the trade. Remember, the Market takes you into the trade with a pending order.
3. Know exactly what your risk is (with a 90 percent probability) on your trade in dollars and cents. Are you willing to risk X number of dollars and cents on the trade? For example, if you are willing to risk (that is part of your plan) $5.00/share on a trade if it goes against you, then don’t be surprised when the stock is down $4.90/share because that accepted risk IS a part of your plan! Also accept that in 10 percent of your trades, the fill of your stop loss may get blown out on the opening or in after-hours trading. It’s like Rocky says, you have to be willing to take the hits.
4. Accept the risk prior to entering the trade. Every trade offers a certain level of risk. You are simply accepting that risk BEFORE you take the trade.
5. Allow the market to always take you out of the trade at your predetermined stop price. Not too early, not too late, but at your plan going into the trade. It’s normal to second guess yourself once your emotions get involved. The goal is to exhibit discipline instead of emotion. It will take practice.
6. Agree not to take your profits too early. Let’s say that a stock you really liked due to its repeating pattern and signal confirmation is going up for seven trading days in a row. The next day, the stock starts pulling back. Are you going to panic? Are you going to take your profits? My question for you is what was your PLAN going into the trade? If that is still intact, then stay with the trade. If not, then get out.
7. Agree that as long as your strategy for entering the trade is still intact, you will be disciplined not to get scared and taken out too early.
The traders on the other side of your trade are hoping that you do exactly that. Remember, it’s a zero-sum game, somebody wins and somebody loses. Winning is always better.
