Let’s Talk Strategy - Part 2
One thing that you will continuously refer to is the history of the demo-trades you made. You should maintain a detailed history of all demo-trades you make including, but not limited to the following information:
Long or short position
Number of shares traded
Entry price with time of entry
Exit price with time of exit
Profit target and percentage
Profit or loss
Part of your trading strategy should be developing a formula for your profit targets and stop losses. You should not trade and just take profits as you see them. We all know that the markets don’t like uncertainty and neither do successful traders. Know the amount of profits you are aiming for and focus, focus, focus to reach for those profit goals. For example, you may wish to set three different profit targets and possibly walk your stock out - the Daily Swing Trades service does just that with three different profit targets, three different profit goals for traders utilizing the service. Consider exiting your position in small blocks of maybe one hundred shares at a time, on your first two targets. On your last block of shares you may consider setting a trailing stop in an attempt to reap the most profits.
Volatile stocks should be traded in smaller lot sizes as well as running with wider stops on those particular stocks. Lower priced stocks would require a tighter stop because you are more likely to trade a larger number of shares. Higher priced stocks, unless they are very volatile, would require a wider stop since you will generally be trading a smaller block of shares. Less active or less volatile stocks can be traded in larger lot sizes but, tighter stops. Remember, the larger lot size you trade, normally equates to a tighter stop loss.
Many ‘rookie’ or ‘newbie’ traders think they only want to trade lower dollar stocks, the single digit ones. Let me tell you, those low dollar stocks can be some with the most risk. Why you ask? It’s actually very simple, the lower the price of a stock, the more shares a trader normally will trade however; when that low priced stock turns against you, you better be prepared to move real fast to exit or you can end up losing much, much more than your pre-determined stop loss ever allotted for. Again, this is something you will have tested, thoroughly, while in demo-trading mode.
You the trader need to decide whether you want to determine your profit targets and stop losses by a set number of points or a percentage amount. A good rule of thumb to determine these numbers should be based on your historical demo-trading history.
So, you demo-traded for X number of months and have developed a successful trading strategy while in demo-trading mode on a consistent basis and are ready to move into live trading. You’re nervous, which is to be expected. The key thing to remember is that you can switch back to demo-trading mode at any time to reinforce your confidence or possibly to test a different trading method.
Remember, live trading is substantially different than demo-trading. Do not expect to duplicate your demo-trades when you proceed to live trading. You must take serious consideration into the fact that there are many variables from demo and live trading. Consider a Training Program which may assist you with developing your ultimate, personalized trading strategy.