The Art of Speculation (Part 3)

05/30/2008 12:00 am EST


Ron Ianieri

Founder, Ion Options, LLC

Investing and trading can be an overwhelming task.  It is not an easy job.  It takes time to do the proper research, find the opportunity, and apply the best strategy.  Then you need to enter and monitor the trade.  While you are monitoring the trade you should be looking for your next stock/options position to enter.  While monitoring the news, your research, the market movement, your stock's movement, you also have to handle your daily life of phone calls, paying bills, spouse, children, etc.  With all of these distractions, it is easy to miss the market moving up a few points in your favor and then falling back off to below where you put your trade on.  It happens to all traders.

If you have your stops in place and they are built into your system, then you have the confidence to know that the stock can fluctuate around, but if it reverses below (above) "x", then you know that you will be out of that trade.  In the same respect, if a stock makes an unexpected move upwards, maybe a large mutual fund buy order came in and drove the stock up $4 you can lock a good portion of the move.  If you don't have your stops in place and the stock reverses and you see none of the profits that had briefly materialized, then you will feel pretty mad at yourself.

Unfortunately, this is part of trading and whether or not it gets you down is all in how you handle it.  Accept that there will be winners and losers.  Don't get mad or upset at the losing trades. Instead, analyze what you did, and if a better trade could have exited you out of the position earlier or a better stop could have been entered, and then you know for next time. 

Even if you aren't a full time trader entry and exit orders also holds for those people who trade or invest on a part time basis.  Having the proper exit or stop orders in place can make an even bigger difference in your profitability, especially if you are not watching the market on a regular basis.  Please don't get caught with your entire portfolio in the buy and hold mentality. 

It important that you should know before you enter the trade where you will take profits and exit the position if it is moving for or against you.  If you do it with advanced orders then it should improve your trading results.

Take profits.often!

By Ron Ianieri
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