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Tuesday, May 19, 2009

A Hurdle Common Amoungst Most Traders

This post by connor is very important to read. I have found myself in the same circumstance time and time again. Please read this and listen to his very important words of wisdom on how to overcome this hurdle common amoungst most traders.

Trying Too Hard.

Today was one of my better days in the last week. This was not a coincidence the stock I was trading was very in play and I was respecting the levels. The problems I was having for the last week and a half were entirely created by my own trading. It started with COF when they issued their secondary offering and the firms underwriting it were trying to support the stock at that price(27.75). What was happening in this case was that I was just trying too hard. When I try too hard I take bigger size and I do not trade into my position. When this happens I am taking on more risk than I should and am not able to handle the small ticks against my price. After getting ripped up in COF, I then shorted MGM below 10.75, an important level from earnings. Trying to be the first in with my biggest size was my mistake. I was just trying to hit the stock without ever being out of the money. The result of this was that I got stopped out shorting a weak stock while it was going down. If I traded the way I normally would have, establishing a position and then adding when I had further confirmation, I would have been able to make money from the 2 point down move to come.

What was the cause of this terrible trading for a week? Trying to hard. I was pressing things as opposed to trying to trade them. As a short term trader my personal bias on a stock means nothing. The amount of shares I buy or sell will not have a long term effect on the price. When this is the case I have to play my hand and trade the order flow. Take on enough risk that I can handle and continue to hold the stock for the move.

The sad conclusion from my trading in the last week is I would have been able to make between 1500 and 2500 dollars a day by never having to risk more than 500. If you have the same problem breaking through a trading plateau, try to make your goals clear. If you are trying to hold positions longer, just hold 100 shares and this will get you in the habit. If you are trying to trade with bigger size, increase your tier by 10-20% until you are comfortable and profitable for enough time to come to a conclusion. The thing with this game is that the markets will be around for a long time. Trying to accomplish too much in one trade or in one day will just lead to you taking steps back and not learning. The thing I should have done instead of trying to hold a core of 2000 shares up from 800 was to increase my tier size by 200 so that my core would have been 1000-1200.

My resolution, take on a little more risk when you want more reward but enough so that you can handle the swings. Today I was shorting MDT at 33 and I was trading with tier 1000 instead of trying to do too much and trying to get too large of a position. I was only focused on the downside and not the up. Never risking more than 15 cents, I was able to hold a core for more than 1.20. That is a good trade, risk 1 to make 8. Now, my next problem I have to remedy is my midday trading. I have started to just trade midday with 3-500 shares because my best days midday have come from not trading with size but just capturing a steady move. Last week every trade I was entering was with at least 1000 shares. Again, forcing things way too much. When you have a passion for something, you may try to rush into your development. This will only lead to taking 2 steps forward and at least one backwards. Try to take the slow approach by building a foundation you can base a career off of, not just a week or a month.

Continue reading connors article here. Be sure to bookmark his blog.

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