Buy Signals Sell Signals: Strategic Stock Market Entries and Exits pdfdrive com

How much money can you handle losing?
What percentage of your trading capital are you willing to lose? If you start with
$100,000 can you handle getting down to $90,000? Will you quit trading if you
end up with only $80,000? It is crucial to make these decisions before you dive
into real-time trading. You need to know when you should get out, and avoid
your maximum loss level. Trade small enough so you never get near your
breaking point. Many new traders miss this simple principle because they see the
prize but not the danger. It is much easier to keep the money you have than to
lose it and try to get it back. Each buy signal is an opportunity to both make
money and lose money.
How much money do you intend to make trading?

Your goal for returns will correlate closely with your potential for losses.

Typically, the bigger the return the greater the drawdown in capital to achieve

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those returns due to the increased risk. If you want to try for a 50% annual
return, you will increase your potential for a 50% drawdown in that attempt.
Great traders have average returns of about 20% a year with drawdowns staying
under 10%.
Don’t fall for promises of easy and quick millions by penny stock pushers or
other trading scams, the odds are much greater that you lose all your money.
Understand your goal for returns first, then work on a system that has the
potential to create those returns.
How will you know something is wrong with your trading?
If you have more than 10 losses in a row early on, if your heart is pounding on
entry and you stay stressed out while holding a position, or you watch every
single price tick and you are not a day trader, something isn’t right with your
methods.
Trading isn’t an extreme sport. You should be conducing business calmly; using
buy signals and sell signals without drama or consternation. The best money
managers and traders I know have no emotion because each trade is just one of
the next 100. Celebrating a winning trade like you just won the super bowl or
falling into depression over a losing trade, are warning signs that you are overly
invested. Excessive losses in a row may mean that your stop losses are too tight,
or you are having trouble being patient enough because it is outside your
comfort zone.