Saturday, 9 May 2015

3 Invaluable Tips For Trading

Today I will be discussing 3 tips that I think would really change your trading success rate. I started out trading without utilising them and often entered bad trades, but after these minor tweaks, I was in a whole different world.

Tip #1: Don't Trade Immediately

I always trade 1 hour after the market has opened. For example, the NYSE opens at 9.30pm GMT+8 (Singapore Time) and the prices of the stocks will be fluctuating like crazy because of the big players such as investment banks are adjusting their positions.

So... why don't I trade these volatile periods? I always set an entry price for a trade. These volatility in the stock's price can cause me to enter a trade that isn't necessarily the true consensus of the market. Therefore, I always enter my order about 1 hour after the market has opened.

Tip #2: Don't Over Trade

When I first started out trading, I always felt like I had to take a position; I either had to be long or short. This made me enter a lot of trades that did not work out and that meant losing money. You have to realise that not trading is also taking a position. If you feel like the market is ranging or it is against your strategy, you can always choose to not trade and wait for a better opportunity to present itself. Choose to focus on a few good trades instead of having the need to enter every time an opportunity presents itself.

Not earning money beats losing money every time. 

Tip #3 Always Check Your Order

I don't really want to admit it, but a mistake as careless as this can cost you a lot of money. Always double check your order quantity (how many stocks you are going to buy) as well as the order price. Not only that, the other figures that are crucial is the stop-loss and the take-profit price and quantity. 

If for some reason you entered the wrong quantity, there is no one else to blame except yourself. The market isn't going to give you a chance because it was a careless mistake. You will have to bear that loss. I remember making that mistake once, and it was once too many. 

Say for example, you enter a trade at $11 for 1000 shares. You want to place a stop-loss price of $10 for 1000 shares. You enter $10 as the stop-loss price but you made the mistake of entering 100 shares due to carelessness. This means that if the market moves against you, you are supposed to lose a maximum of $1000. 

But since you entered 100 shares only, you lose $100 and the remaining loss will still be in your unrealised profit. If the market continues to move against you, your loss will be significantly more than $1000 dollars. 

Not only that, you incur more commission cost because each trade you take (buy/sell), you have to pay a certain amount of money. Lets say each transaction cost a minimum of $10. The trade above should cost you $20 in total (Buy and Sell). But because you entered the wrong quantity and have to sell it again, you will incur a total of $30 (Buy, Partial Sell, Partial Sell).

So you incur not only more loss, but more commission cost. Remember to ALWAYS check your order.

As always, happy trading.


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