Wait…don’t touch that mouse! Before you make that trade you must consider something absolutely critical to your financial health. I know what you’re thinking.
You’ve done your analysis and the stock looks great. You could make a lot of money on this one.
Everyone is raving about this sector and this looks like a sure thing. Your Dad, Uncle Charlie, Cousin Bill are in this also.
You can’t wait to buy and start making some real money!
Have you thought about the one critical factor that you must consider for this trade or investment?
The number one thing you must consider and plan for is…
Where am I Wrong?
What? You don’t like negative thinking. You don’t want to think about that. This is a bull market, it will work out…right?
Hear me out. It doesn’t matter if this is a trade or an investment. You must decide where you will be wrong. At what point is this not doing what it should be doing?
You don’t want a trade to turn into an investment. And you don’t want an investment to turn into a hope and a prayer.
Let me tell you a story…
I have a friend who got into a stock about a year ago around $5 a share. The stock started dropping and over the last year has steadily declined.
I think he got into this because his Dad had some of this stock. And his Dad has a money manager so everything should be good…right?
The stock recently was under $1 a share. I was talking with him about this back when it was around $2.30 a share. His attitude was, ‘well I am just going to wait it out’.
He asked his Dad if he had ever had a stock go bankrupt, where he lost everything he’d invested. He responded, ‘yes, once or twice, but it’s pretty rare’.
So my friend is staying in. He’s now lost over 80% of his investment. I’m calling it an investment because he’s been in it for over a year now.
But I honestly don’t know if really intended to do that. For all I know he may have gotten in at $5 (cheap stock) and thought he’d double his money in 6 months.
For this Trade You Must Decide
How much money are you willing to lose on this trade. You must decide BEFORE you get into the trade. It is before the trade that you are more unemotional, more objective.
AFTER you get into the trade you have to fight the emotions of greed and the desire to be right.
But wait, that’s how you were trained, isn’t it? In school as you were growing up, 70% was passing and 90% was an “A”, right? So, you want to be right. You need to be right.
It’s About Making Money
Well it’s different in the stock market. It’s not about being right, it’s about making money.
And making money in an environment where you truly do not know what the stock or the overall market will do.
So before you execute that trade, decide what your initial stop will be. And set this stop as a Good-Until-Canceled order with your broker so it will execute without you having to think about it.
And don’t change that initial stop until the stock has moved in the direction you expected, then start to trail a stop that will lock in profits.
And now that you’ve decided on this, what’s the rest of your trade plan?