Stock Trading Info

Trade pig is a term I use to describe someone who repeatedly goes for the kill (huge gain) rather than accept reasonable, smaller sized gains with an occasional big one. This type of trader knows the “big one” is just around the corner, and it has not happened so many times, that they are “due”. This is the same mentality that keeps losers in Vegas betting more and more, they are “due” for the winning streak. In reality, you have no control over how far a day trade or swing trade may go. The only control you as a trader have, is where your stop is. After all, you can control how much you might lose if you are wrong.

Falling into this trap is easy, it always starts by someone noticing that a stock they sold ran another 2,3,5 points more in their favor, and only “if they had not sold”, they could have captured this gain. The brain has a funny way of glossing over things it does not want to see. You see the end result, but not how it gets there, that is kind of ignored. Aspects of things such as you would have got stopped out when it gapped down 2 points the next day are ignored.

Once you are out of a trade, you can always get back in if you think it was a mistake exiting. From my experience, probably 90% of the time, it is a bad idea to go back in and it will end up in a loss. Occasionally that is the right thing to do, but its hard to tell. When a news event causes a shake out that stops you out, sometimes those are o.k. to go back in if you see it was just a knee-jerk reaction. Usually if you go back in, you want to risk far less than a normal stop amount in case this action is not a good idea.

The way to avoid being a trade pig is to always have a stop and a target firmly in mind prior to entering any trade. In addition, your stop should very rarely, if ever, be moved down. Your target should always be flexible, but within a range. Lets say you buy 1000 shares of IBM at 92.00 and think it can move up to 93 prior to the end of the day. In addition, it has made a higher low so the stop on it is 90.90 for the day. Once in the trade, you need to pay attention to how the stock is trading versus the market. If the market is rocketing higher but IBM is struggling to make even 0.25 gain from your entry, perhaps its time to exit OR move the stop up much closer. If the market starts selling, but IBM is slowly pushing higher, perhaps you can move the target up to 93.40 or so. Its this slight adaptation to market conditions and stock price reactions that marks the difference between a novice and a pro. Just don’t let any adaptation lure you into the trade pig zone.