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Why Learn to Trade Stocks?

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Stock trading has numerous benefits as a viable part time occupation.

In contrast to a second job, there are no special qualifications to begin. The stock market doesn’t care about your level of success, education, ethnic origin or any personal characteristics. Complex employers, office politics or difficult employees do not play a part in trading. Additionally you have the freedom to trade from any location. If you follow a few simple rules you can run your business on your own terms.

The most important factor is to be clear about why you want to trade stocks. What do you hope to gain financially from learning to trade?

Are you looking to:

1. Create an enhanced lifestyle with supplemental income?

2. Replace a full time income with a passive income stream?

3. Become independently wealthy by creating a financial base independent of other income sources?

What would being a successful trader mean you? Imagine yourself making successful trades and gaining financially. Think about what it would feel like to have extra money in your bank account and to achieve your targets. With a clear picture of what you want and how that would feel you will be able to remain focused and motivated.

Your first task.

Your first task is to put one primary goal for your trading plan in writing. Additional goals you set can then support your primary plan.

Know Yourself

As well as learning to trade stocks it is essential that you understand yow you react under stress. Being aware of your own behavior patterns and common causes of and reactions to stress when trading will help you to master stock trading.

The reason that many people lose money in the stock market is because they lack the proper knowledge base. Independent of trading styles there is one thing common to all successful traders; the use of a tested and proven system.

In learning to trade you must be willing to let go of pre-formulated ideas and start fresh, develop new successful habits, and the discipline necessary to trade successfully over time.

Are you willing to do this?

Successful stock market trading eludes many people because they don’t have contact with an experienced, successful trader or trading system that actually works. Going it alone can be potentially expensive when learning by trial and error. Investing in a solid education and taking advantage of the insights and experience of successful trader makes a lot of sense when learning to trade successfully.

The Profit Room

 

Control Your Emotions, Succeed in Trading

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Why is it that some people are successful in trading the markets? And why is it some people fail? Is it luck that determines if you are successful or not in making money from the market? Is it the system or strategy that a person use which determines their success?

A lot would say that it is the system or strategy that they employ which ultimately determines if they come out winning from the market.

Every system that exists on the internet will show you how to make money using it. Without a doubt, it will make money for you. The question is usually how much money will the system make for you. All the systems that are out there will show to you how their system has worked base on historical data or activity and then at the bottom of the page there would be a disclaimer clause that states ‘.. Historical data does not determine or guarantee future earnings….’

So why is it that these sites or page include this disclaimer clause?

The disclaimer clause is incorporated in it because they know that there are certain elements which they can not control. Human emotions.

Human emotions are always the key to either success or failure in any business. And it is no difference when trading the markets. Read all the books about trading that you want, buy all the successful system that you want. If you can’t control your emotions, you can’t succeed in the markets.

That’s the reason for the disclaimers clause because the one thing that the author can not control is their subscribers or customers emotions.

In the market there are but only two main emotions that every trader will experience; GREED and FEAR. When this emotion appears it is not how we eliminate it but rather how we act on it. There are natural emotions that can not be eliminated. This emotions forces us to action, thus how we act on it will determine the outcome.

Like anger, when we are angry at someone, it’s either we say something nasty or we can just kick a bucket or we can just dive into a pool of water. Which ever action that we take, it produces a different outcome or result.

All too often when we begin to see two to three consecutive loses on our trading activities, we would begin to have doubt. When this happens we are already at the state of fear, we fear losing more of our money and thus begin to doubt that the system is working.

While no system is absolute, meaning no system will guarantee that you will make money ALL the time. The system seller would say that we would be able to make money consistently, provided we follow their system to the dot.

On the other hand, when we begin to see two or three consecutive we begin to feel on top of the world. We begin to feel that we can start making good money from the market and then start tweaking the system or maybe putting more money in the market to leverage our earnings or maybe begin to take on more positions, which ultimately make us deviate from the system which we were using. This is when greed has already stepped in to rule our thoughts.

There is saying ‘The system is only as good as the person using it’. So if we don’t follow the system either with we are making loses or when we are creating profits. We would ultimately fail. And to follow the system requires discipline. The discipline to act on our fear and greed when it sets in, will determine how well we do in the market.

Once again discipline is the key. We must have the discipline to say ‘I have reached my target. I should take profits now even though it may go higher’ when greed sets in. And when fear sets in one should say ‘I have to take a position even though the market does not seem to be moving in my favor’

While these are but two circumstances when greed and fears arises, there are, and will be many instances when we need to make a decision to either enter or exit the market. And these are very two most important decisions to take in order to succeed in the markets. The discipline to follow the system diligently no matter what happens to the market

So no matter how good the system is, the only and sure way is to lasting success in the market depend on the discipline to overcome our personal emotional to follow a particular system religiously.

The Profit Room

 

Trading Expectations

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As we all know, when we open a trade, we look forward to it being a winner. Given the win rate of a certain trading strategy, there is a random distribution between wins and losses. However, we trade to make money with a proven strategy. The Profit Room’s strategy allows you to be confident when you place a trade. So we don’t “panic close” the trade when the market goes against us, or exit too soon when we are in profit.

If you know the expectancy of your trading strategy, you will be able to deal with these situations better. There is a psychological aspect here: knowing the predictable profitability of a larger number of trades you undertake will build your confidence, which in turn reduces your tendency to shortcut winners and to let losers run too long. Having this confidence will thereby improve your overall results.

How to determine the expectancy of your trading system? Assuming you keep records of your trades, you should go back and look at all your trades that were profitable versus all your losing trades. Do this over a period of at least 3 months and at least 100 trades. The more data you can use, the more accurate the result. We only need 4 pieces of information: number of winning trades, number of losing trades, amount of money won and amount of money lost. From this data we can calculate the following:

Net profit = amount of money won – amount of money lost

Win rate = number of winning trades / total number of trades

Lose rate = 1 – win rate

Average winner = amount of money won / total number of winners

Average loser = amount of money lost / total number of losers

Average reward / risk = average winner / average loser

Expectancy per trade = win rate x average winner – lose rate x average loser

Or, alternatively, expectancy per trade = net profit / total # trades

Expectancy per month (profit forecast) = expectancy per trade x average # trades per month

Expectancy per amount of money risked = win rate x (average reward / risk + 1) – 1

Or, alternatively, expectancy per amount of money risked = net profit / average loser / total # trades

We hope this information helps you in determining your expectancy rate of trading.

The Profit Room 

Is Day Trading For A Living Your Cup Of Tea?

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If you like working with money, then maybe day trading for a living is what you should be doing. This type of trading works daytime hours only, from the moment the stock market opens at 9:30am until it closes at 4pm in the afternoon, you can do a lot of trading in that amount of time. Day trading for livings with your own money, if you loose it, then you have no one to blame but yourself. However, it may be a good way to watch your money grow too. The following is the basic definition of what day trading is all about. Maybe it is your cup of tea, maybe not, only you can decide.

What is Day Trading?

Day trading for a living is when you take a position in the markets with a view of squaring that position before the end of that day. Day trading for a living mean a trader usually trades many times a day looking for fractions of a point to a few points per trade, however, by the end of the day he or she will close out all their positions. The goal of the day is to capitalize on price movement within one trading day. Unlike investors, the day trader will hold positions for only a few seconds or minutes, and never overnight.

What day trading really means.

The meaning of day trading is actually a misunderstood term. True day trading means not holding on to your stock positions beyond the current trading day, meaning your not suppose to hold on to your stock overnight. Trading this way is really the safest way to do day trading, this way one is not exposed to the potential losses that can happen if the stock marked is closed due to news that can affect the prices of your stocks. There are many people out there today who are not very good “day traders.” Because of greed, they will hold their stock position overnight, setting themselves up for the catastrophic elimination of their capital. In day trading currency, the term “day trading” changes slightly. Because currencies can be traded 24-hours a day, there can’t’ really be any overnight trading. You can have open positions for longer than a day with active stop losses than can be activated at any time.

There are a few different types of day traders out there today, it can actually be subdivided into a number of styles.

Scalpers- This type of day trading involves the rapid and repeated buying and selling of a large amount of stocks within minutes or seconds. The goal here is to earn a small per share profit on each transaction while minimizing the risk.

Momentum Traders- This style of day trading involves identifying and trading stocks that are in a moving pattern during the day, in an attempt to buy such stocks at bottoms and sell at tops.

The advantages of day trading for a living is there are no overnight risks. Because positions are closed prior to the end of the trading day, news and events that affect the next trading day’s opening prices do not affect your portfolio. Day trading for a living takes skill, experience, and knowledge. Make sure you get educated before you decide to take that on as your main source of income.

The Profit Room

Day Trading or Investing for the Long Haul?

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Among those who buy and sell stocks there is an ongoing debate about whether the most profitable approach to stock market trading is short or long term investment. And the two sides rarely reach agreement, because one side is rather conservative in its approach, whereas the other has a more radical and freewheeling attitude. Day traders are usually considered the mavericks of the trading world, and they are known for taking gambler’s risks and making huge profits in short amounts of time – sometimes buying and selling the same stock several times in a single day. Those who prefer to buy and hold their stocks follow a more risk-averse path, and cite historical trends to back up their claim that their method is actually more reliable and is the real shortcut to wealth.

Most investors can enjoy the best of both worlds, by setting aside some of their money for day trades, and the balance of it for longer-term investment. Because day trading tends to be more volatile, and can result in quick profits or fast losses, most of us would be advised to put only as much of our investment capital as we can comfortably afford to lose, into this kind of trading strategy. That way, even if you encounter a worse case scenario, it will not adversely impact your overall financial situation.

There are pros and cons to both styles of investing. Those who do day trades enjoy the fact that they can get in and out of the market quickly, and make money without waiting for the results. But any kind of stock market investment strategy requires research into the companies you decide to invest in, and research can take time to do. If you are buying and selling so fast that you don’t have time to do adequate background analysis, day trading may not be a prudent approach.

Investing in companies that provide slow but steady returns is a time-tested approach to the stock market. In fact, most historical evidence supports the idea that if you buy quality stocks and hold them for long periods of time – at least five years or more – you will do very well in the stock market. For that reason, those who are young enough to have time on their side would probably be wise to buy some stocks and sock them away for retirement.

With most investments, it is usually best to diversify to minimize risk and maximize potential gains. One way to accomplish this in the stock market is to employ both strategies, and use a portion of your investment capital for short-term trades, while leaving another portion in long term investments. If one basket of investments doesn’t do well, the other probably will. And if both do well, you will enjoy twice as much success.

At The Profit Room we can help you learn how to day trade and swing trade. So whatever trading strategy decide on contact us.

Short-term vs. Long-term stock investment

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There are many persons that run towards stock investment as a means to make some quick money. This is perhaps however not the best investment option for persons with short term rewards in mind. The best option when thinking of investing in stocks is if you are interested in accumulating funds over a long period of time. One such example is the investment for future needs such as a nest egg for retirement and so on.

In stock investment both short term and long term investments come with risks attached and therefore nothing is truly guaranteed in the stock market. Today could be very good and tomorrow very bad resulting in great gains or great losses as the case may be. However, in terms of long term investment, it is shown according to statistics that there are no 20 year portfolios that have lost on the stock market. The average returns have averaged about 10 percent and these accounts all have a broadly diversified portfolio of stocks.

In the short term the market is very risky. The market will go up and then go down so if you are only thinking of investing for a short period then this is not the best option. If you are nearing retirement age and now beginning to invest in stocks this is not a good option. The best option in these cases as a protection against inflation, rather than stocks, is to invest in stable investments such as bonds and other cash instruments. This offers more security than stocks in the short term.

So how long is considered short term? Many persons are under the misconception that short term means less than a year but this is in fact not so. In terms of stocks short term is considered to be five years or less and some persons will recommend more years rather than the minimum of five years. A good rule is that if you are going to need your funds in the next five years then stay away from stock investment. Another point to note is that unless you are an active trader then short term investments make no sense. If the funds being used are for retirement investment then being an active trader is also not recommended.

The average down time for some markets is a year but this has been seen to last much longer a well so though for a long term investor this downtime may seen to be a lifetime it will pass but if you are a short term investor you will lose a lot depending on the market fluctuations. Stock investment will offer many great opportunities but can be devastating for a short term investor. If you know that the funds you are investing will be required for use in a short time then choose investment options that are more secure and protected. It is true that you may get lucky and make a fortune but it is also true that the risks are high and that you can lose everything.

The Profit Room

Greed And Fear

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Greed and fear are the major players in the stock market. These two emotions are the
driving force behind almost all market participants – Institutional mangers, stockbrokers,
Investors, traders and yourself.

You might be saying to yourself that greed and fear will never get in the way of my trading,
but believe it or not they will be. It is not something to be ashamed of. It is something you
have to admit to, come face to face with, If you are to become a successful stock trader or
investor.

This is why our day trading chat room is helpful. You can see how our moderators deal with this everyday.

What do greed and fear look like in the stock market trading arena?

You have been watching a particular stock for some time now. It has set up perfectly, so you pull the trigger. You bought it at the perfect price and now it is moving higher just as you thought it would.

Now greed steps up to the plate and says to you, this is going to be a rocket ship. So you buy some more shares. Or your stock moves a few points and goes passed the price that you decided to get out. Greed tells you this baby is going higher tomorrow so you hang on.

When stocks make strong moves to the upside greed from all the cumulative market participants joins the move.

Stock prices usually fall faster then they go up, and when this happens, fear now steps up to the plate.

Lets look at the example above, where your stock went through your get out price and you held on because greed was by your side. The next morning the stock price gaps down. Their is heavy selling all morning long. Greed is telling you to hang in there the price will come back. The price keeps going down, now you get a knot in your gut, and your knuckles are turning white. Fear is now by your side, but by now it is to late, your nice profit has turned into a loss.

Everyone goes through this until they have mastered the ugly faces of greed and fear. Master this and you are well on your way to becoming a successful stock trader.

The Profit Room’s premium courses are designed to help you conquer the greed and fear that can result from trading.

Trade Safe!