Beginner Trading Scenarios
What to do when:
- You bought the wrong stock. Don't sell it just yet. Quickly make an assessment (you might just make money!) to determine if
the trade is going for you or against you. First, determine the spread and possible exit points. Check the Prints and see if you are getting appropriate signals.
Regardless, if it is going up, let it run, offer into the momentum and take a quick profit. Consider it a gift. If it is not going your way, exit quickly. Do not waste
time rationalizing or justifying the trade.
- The computer system goes down. No system is immune to occasional bog-downs. Whether the source of the problem is with the
brokerage, the data source or with the entire NASDAQ itself, avoid trading until it is fixed. If you had an open position, do not panic. You will not only cloud your
judgment, but you may also make a fool of yourself. Know what open positions you have and write them on a piece of paper. If you wish to exit that position, write down
a specific buy or sell order (stock symbol, market or limit order, buy or sell, price and share size) and hand it to the licensed broker in the office if you are trading
in an office, or phone in the order execution.
- You are showing a substantial profit and don't know what to do. Believe it or not, many people have trouble closing out a
profitable trade. It is a greed problem. If you are showing a large profit and you are a beginner, you got lucky. Go ahead, take the profit! To wait, just to see the profit
disappear, is a classic beginner's mistake. Don't end up saying, “I should have sold when I was up."
- The trade is not going in your favor. There is only one thing to do – get out! You can't win 'em all. As a reminder, a big and
costly loser usually starts off as a small one. Generally, if you are out more than one point, you are in real trouble.
- Somebody told you to short a stock. Do not act upon it! Observe and see what you can learn.
- You are in a situation where you cannot concentrate. Do not trade.
- You have more than 3 losers in a row. Step back, relax and see what you did wrong. Avoid trading to “make back the money." Trade
one at a time. A new trade now should have little relevance to your last trade.
- You have 60 tickets in the middle of the day. You are over trading. Practice your decision-making skills with quality decisions,
not how many trades you can fire off. Even after becoming an ace at execution skills, you must continue to practice and learn because as previously stated, the financial
world is always changing. Keep ahead of the game and your trading will be profitable!
We hope you've enjoyed this educational section provided by Online Trading Academy. We've touched on only a few of the key points needed to become a successful trader.
For more information, read our article on Investing for Beginners to discover basic rules for smart investors to follow.
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