When Enough is Enough to Profit

11/12/2013 6:00 am EST

Focus: STOCKS

Daniel Gramza

President, Gramza Capital Management, Inc.

According to Daniel Gramza, it's important to learn as much about a stock as you need to know before a trade, but not too much to cause you to hesitate and miss out.

SPEAKER 1:  My guest today is Dan Gramza.  We are talking about kind of the psychology of successful traders and, Dan, I know traders, especially newer traders, but everybody, can hesitate.  They see a good signal, they see a good market condition, but they don't pull the trigger on that trade.  Give us some ideas about how they can kind of get through that.

DAN GRAMZA:  You know, I have to tell you something Tim.  I think there is a core reason for that.  I mean why would you and I hesitate to do anything in life.  We probably would hesitate when we are not confident.  We don't truly believe what we are about to do so the result is we hesitate or we may hesitate because we think the outcome of this trade, a business decision, somehow impacts on who I am as a person.  If it fails, if it doesn't work, then it means I am stupid or I am a bad person or I don't get it, and you and I know that a trade is a business decision and it has an outcome.  It is profitable; it is not profitable.  It cooperates, it doesn't cooperate.  It has nothing to do with us unless we add that in there so I think that also holds people back from making trading decisions.  My feeling is that someone should take the time, and it is critical to take the time to know before they ever do this trade how much risk this trade is going to require because the worst time to think about risk is when you have a losing trade.  Before we do the trade, how much risk?  What is our profit expectation?  How long does this trade typically last?  Is this trading idea I am using, is it time specific?  If I am day trading, is there a certain time of day that this performs the best and is it robust?  Does it work well in trending market, sideways market, down trending markets?  If you and I have those answers and we have gone through the research to do that, now we are prepared to trade.  Now, we can be confident about making that decision. 

SPEAKER 1:  There are a lot of traders I think that feel like the more information they have, because in real life, when you make decisions, you try to get as much information as you can and make that decision, that can really be paralyzing in trading though so, with so much information out there, how much is enough?  When do I decide I have enough to make a good decision here and trade?

DAN GRAMZA:  That is an excellent point because that is very true.  What is wonderful about technology is that we have so much information and what is bad about technology is we have so much information, right, which is what you are saying.  From my point of view, I think we want the minimum.  We want the minimum amount of information that will really help us make that decision.  For me, I am a technical trader so I start with that.  Do I think fundamentals are important?  Absolutely, but I don't try to trade the fundamental.  I try to trade how the market absorbs the fundamental.  I don't trade my opinion of the fundamental.  Again, I trade price.  Price puts money in my pocket and takes money out of my pocket, not my opinion, so I think it is important to keep that parameter in mind.  When it comes to news information, I think we will want general ideas but the bottom line is how price absorbs that information and that should dictate whether we buy or sell from my point of view so I want to start there.  How does price behave and that is the opportunity I am looking for.

SPEAKER 1:  Dan, thanks for your time.

DAN GRAMZA:  My pleasure.

SPEAKER 1: You are watching the MoneyShow.com video network. 

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