Daily Market Commentary Feb. 25, 2013
I have been asked several time recently how to overcome the fear of placing trades. In fact just today I got an email from someone saying that they had alerts for $ATVI during last weeks earnings call, saw the setup, but couldn’t quite pull the trigger. The setup worked just as they planned, yet they missed the trade. I never have this problem. In fact, I sometimes shoot first ask questions later.. However, having talked to a lot of traders, I do know a little bit about this topic. So per the email that I received, I have decided to write this blog and discuss a little thing known as paralysis of analyis.
The term ——paralysis of analysis—- refers to over-analyzing (or over-thinking) a situation, so that a decision or action is never taken, thus paralyzing the outcome. Paralysis of analysis occurs in all parts of life, not just trading. Perhaps you have a great idea for a new social media site, but you don’t know how to go about getting started. You don’t know how to get the patent, or how to recruit investors for your idea, or whatever. So you are stuck, basically paralyzed and at a standstill. You will never be successful and never fulfill your dreams if you don’t figure out how to overcome this fear. Being paralyzed is great for new traders because you want to take the time to learn before placing trades. You cannot blindly follow a trader and expect to make money. You have to know the concept behind the trades and understand why the trade is being placed if you want to be truly successful. However, once you have taken this time to learn then how to do you muster up the courage to actually push the “buy” button and put your plan into action?? Well…..
one of the first things that you must remember as you start to overcome this fear is that there is no perfect way to approach trading. Each individual must find an approach that is perfect for themselves. There is no perfect strategy that will “always” work in the stock market. Always doesn’t exist. Learning to treat trading as an art form rather than an exact science is how you learn to be successful You enter stocks that have the highest probability setups, and you exit stocks when those setups don’t work, with your capital still intact. This is the key to success in trading.
4 steps to overcome paralysis of analysis below:
1. Master high probability setups and know how they should act
If you are trying to read every article, book or website out there and use every indicator that has ever been placed on a chart, then you are without a doubt over analyzing this business and just going to run into a wall of confusion. Start by learning 1 or 2 setups and figure out what they are supposed to look like and how they are supposed to act. Start out just trading this setup.. then slowly add in another and another until you have a complete arsenal.
2. Start by taking small positions in the trades.
Trade the stock as if it were a normal position size. This will help you get your feet wet and get more comfortable with placing actual trades.
3. Have a game plan for the stocks you enter.
Know what type of trade it is that you are entering and what you expect out of the stock. If the trade doesn’t go as planned, then sell the stock and move on. There are always other trades just around the corner. Cutting losses quickly on setups that go against you can be your greatest friend.
4. Keep a trade journal
Review your trade journal at night. Try to talk about everything in the journal: why you want to enter the trade, your target prices, what that market is doing, what the sector of the stock is doing, your risk reward in the trade etc..
Don’t be scared to trade. Don’t be scared of losing a little bit of money in the beginning. Keep calm. As in many things in life, the real work is done in preparing for the battle. The battle is simply a mimic of what you did the months before in preparation. My highschool football coach once told me, “Luck is what happens when preparation meets opportunity.” Once you have put in the amount of time to learn what you are doing then don’t fear going for it. you just might get “lucky”…
I get alot of emails asking me about what I suggest for new and old traders. So I decided to start a new blog to make it easier for all my followers on Seeking Alpha here are my suggestions:
If you have 20k dollars then you have the ability to make a great living trading. Im not saying that you are going to become a millionaire. But, if you made 5-10k a month would that change your life? It changed mine! 1000 bucks on 20k.. thats 5% a day right? cmon G….. thats not possible.. Oh its possible.. Look at this guy IronTrader on facebook.. he has a extremely disciplined and laid back style strategy that grinds him out his money everyday. Very consistent and very profitable.
People are going to tell you that this isn’t possible, but there are tons and tons of people out there that do it. It is not hard to make 1000 bucks a day on 20k dollars in a margin account. You have to be disciplined and you have to know your strategy. Margin accounts give you a leveraging capability of 6:1 for daily intraday trading. Use that margin in your favor intraday and you can do it. You have to have a system and you have to have the right broker.
Sooooooo to start off:
Get yourself a seeking alpha, stocktwits, Cnbc and Morningstar Account. Take a 1/4 of your money and learn a strategy…. Make sure you learn a strategy or you will LOSE YOUR MONEY…. I would recommend you buy:
The Neatest Little Guide to Stock Market Investing
ISBN-10: 0452298628, ISBN-13: 978-0452298620
If you have any questions or need a coach or mentor feel free to contact me at Gianni.firstname.lastname@example.org