Archive for August, 2011

The three major techniques used for stopping orders

Although there is a very good variety of techniques that can be used to stop orders, the three mainly used are very distinct and the reason why they are used is simply because they are effective and easy to work with.  The distinct techniques will include the following approaches:

Support and resistance

In support and resistance, two concepts are more or less involved. To start with there is support and this is actually when the price stopped to fall in some recent past where the other concept of resistance represents the period where the prices stopped rising.  In case you are dealing with an up bet, your main focus should be on support and you should place your stops on the other side of it. As for the down bets, the reverse is equally true and the best thing is to place stops on the other side of resistance. The creativity of such a technique is that it gives the chance to literally revamp the price changes of any instruments from one point to another within a certain limit or range and in case the approach fails to do that, then it is very important to suspend any of the bets.

Moving averages

Averages are commonly used and are just involved in setting up a criterion of stopping bets. for example an investor or company can choose to stop bets at the 20 moving average or even 10, it all depends on the criteria the company would want to use and how it sees the prospects of profits in that day of trade. The process may vary since the averages are determined by certain dynamic principles that are subject to change from time to time.

Money stops

Money stops simply set a certain point where no more losses can be taken. In other words it is a point where in case losses reach, the trading or the bet should be suspended. While there are a lot of people who believe that the method simply works wonders, there are still those that have their doubts but either way, the use of the money stops can be a very good way of stopping orders as it gives you the independence of choosing to what extent you can lose. However, it should be said that that the lower the amount the smaller the risk and consequently, the lower the chance of high profits.

The psychology of trading

The psychology of trading as much as it may seem rather auxiliary in investment is very crucial and as a matter of fact, how best you succeed in stock trading is all down to how informed your investment decisions are and this to be fair is determined by your ability to walk over your emotions and make objective decisions based on realistic facts something that is well enshrined in the trading psychology you have. The nature of modern trading markets is structured in a manner that allows each trader to map his or her own destiny and that said, the reason for success or failure has got nothing to do with trends or nature of markets or instruments, but it is all down to the trader or the investor and that is you. As you may quite rightly know, developing a strong trading psychology is very important and here are some of the concepts that you may find helpful in doing this;

a)      The virtue of being patient in any investment that you make is close to imperative of not imperative. Trading is a long term investment and it will seem to be very ignorant to expect one time results in minutes. Strategies take time to work, and you must have this time for them.

b)      Believe in what you are doing and always give your approaches own your personal backing even though they may seem to be against the odds in fact, the majority is not always right if anything, personal decisions are more informed than popular ones.

c)      Always tread carefully in everything that you do, being cautious helps to identify potential loop holes as well as strong points and further more it gives you the ability to gauge your decisions whether they are informed or not, something very important for trading

d)      Stay focused to your objectives either short term or long term never restructure unless it seem inevitable which to be honest rarely occurs. Focus earns you what you want and not what the market has for you. Never settle down for less.

e)      Always be ready for anything, the markets we trade in are like the lives we live in we will always have the highs and the lows and how prepared you are in dealing with any the better for you.

f)       Always remain objective with stock trading and that means that your decision should be based on concrete financial analysis that can be proven empirically. Letting your emotions carry you to your investment as much as it may sound rude will be digging your own grave of financial suicide

g)      Always ensure that you lose as low as you possibly can. As much as this may be difficult to attain at times, the golden rules of any investment will be maximize profits while reducing losses simultaneously and that will ensure you are able to take any blow and rise again should it come anyway.

h)      Finally you should always average your positions upwards and not down. What this means is that, increase your position when there is a genuine rise in trends and that is when the market is healthy.