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February 01, 2007 at 9:46 am | | Comments 3

Trading Intentions vs. Trading Actions

We’re all weak from time to time! Even the most disciplined suffer from moments of weakness. But, it’s how we learn from those moments that will determine our growth.

Case in point: The other day I was heating up some leftovers from Macaroni Grill. It wasn’t enough for 2 servings, but it was more than 1 serving and I knew it. I just decided to heat it all up, intending to eat what I wanted and leave the rest. Yeah, right!

Next thing I know, I’m down to the last few bites from what was originally a huge plate of food! What happened? I love to eat good food but I’m no Kobayashi! I surprised myself with what I put away, but it’s easy to see how it happened. When I loaded up the plate to begin with, I left the door of possibility wide open.

They say if you make decisions ahead of time, that once it comes time to make a critical choice you will make the right move. I failed to do that with my Macaroni Grill leftovers, and you know where I’m going with this — Trading!

I’ve done it too many times and the odds are that you’re familiar with it too. That trade you never intended to let get away from you just somehow managed to get too big. What started out as a 2 or 3% loser just seemed to snowball and before you blinked you were staring at a 15% loss. Ouch!

Bad News First

The bad news is that as humans, we’re prone to mistakes and that means repeat offenses. We might not have it within ourselves to keep a mental stop and act on it when we should. Blame it on not paying attention, blame it on a slippery market maker, you can even Blame it on Mexico if you need a reason, but the truth is that failing to put our original intentions into an actionable plan is what can make a bad trade even worse.

Preventing Pain

You aren’t alone, every one of us have let trades slip away when we shouldn’t have. The good news is that it’s fixable, and that means it can be avoided (unless the stock gaps big against you). It’s so simple, but yet easy to forget or ignore. Don’t fall into that trap.

It’s your money, so be vigilant! Set your stop loss as soon as you get filled on your entry, and trail it higher as the trade progresses so that you can let your profits run. Personally I do this with conditional orders through CyberTrader because they let me specify exactly what needs to happen to trigger an exit, but even a plain-Jane stop loss will do the job better than a mental stop, so use whatever tools you have at your disposal and turn your trading intentions into actions!

Jeff White
President, The Stock Bandit, Inc.
www.TheStockBandit.com

[tags]Stock Market, Stock Trading, Day Trading[/tags]

  • http://www.TheEssentialsOfTrading.com/Blog John Forman

    I agree 1000%. Stops should pretty much be a must for any new trader to be sure. That takes the whole “well maybe if I give it a bit more room it will come back” thing. If you’re worried about market makers running your stops, the pick a point that isn’t likely to be a common stop point. And never make your stop wider once you set it!!!!!

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  • TheStockBandit

    Good point John, I always move my stops “toward” the trade rather than away from it! After all, what good is having a stop in place if you just adjust it continually to allow more room for a stock which isn’t behaving? Thanks for your input!

    Jeff