AVOID THESE 6
TRADING SNAFUS
Increase ROI & Decrease Loss For The Money Minded Traders
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TABLE OF CONTENTS
i. Snafu #1… Trading with out a plan ii. Snafu #2… Fear of Losses iii. Snafu #3… Trading As A Business iv. Snafu #4… Market Timing v. Snafu #5… Having Unrealistic Expectations vi. Snafu #6… Bad Money Management/Poor
Diversifica6on
CHAPTER
Snafu #1 No Trading Plan ???
Trading Plans 101 When the trading bug first bites you, you’ll learn very fast that even the smallest misstep can be costly. The highs of the risk along with the chase of the next big bubble creates desperado style traders. Today we will provide you with the 6 most common trading snuafus to avoid while treading the markets!
Snafu #1… Trading Without A Plan
• Any successful business requires a thorough business plan to succeed and the same goes with trading. Having a trading plan ensures that you follow guidelines which create rules in order to avoid disasters. When you invest in an instrument, you have just invested in your business so you must treat your trading as a business and I can’t stress enough the importance of trea6ng it as business. Let start with the basics of a trading plan and what it consists of:
• Goals: How much would you like to gain per week, month, and year? What is it geared toward? Day trading? Re6rement?
• Risk: What is the minimum risk/reward you can accept? I am willing to risk $2 for a poten6al of $5. You should know your tolerance,
• which goes hand in hand with your overall trading capital. You need to assess your capital and determine how much risk you are willing to put into any given trade.
• Fundamentals: Don’t get into any trade with out know the ins and outs of the company. Ask yourself when is earnings? Along with using technical analysis for paTerns on different 6me frames on charts.
• Trading Logs: Have a clear form of record keeping. Always create your logs as if someone else was going to review them so that they are organized with winners, losers and the when and whys. This will in the long term increase return of investment and that’s the boTom line. If not you might as well go to a casino and gamble your money away.
“ ."Know when to fold 'em!" by Kenny Rogers ” Snafu #2… Le@ng Fear Reign Supreme (a.k.a. Emo6onal Trading)
Let’s face reality right now if you are trading in any market you will have loses and anyone who tells you different is lying to you and insul6ng your intelligence. You shouldn’t fear a lost, managing losers is key to bigger profits. You ask how? Simple as cu^ng your losers faster and less o_en increases your profit poten6al. As long as you have a good management on losers at the end of the month you will see that your return on investment is greater then before. Here are a few basic rules to follow and pu^ng your fears in check: Ø Don’t chase the holy grail of strategies, which you can set it
and forget it sorry this isn’t a microwave you have to be involved with your trading to minimize lost.
Ø Don’t double up on trades to recoup a recent lost Ø Don’t believe in a magical indicator for all the analysis you
need to enter a trade. Ø Learn from your mistakes Ø Leave emoMons at the door
Snafu #3… Not Trading as a Business (TAB)
Many investors don't recognize the write-‐offs they can use when inves6ng. Did you take a trading educa6on class? Are you paying a monthly subscrip6on for a char6ng program? These all can be properly handled on your taxes.
Also, your IRA contribu6on needs to be taken advantage of EVERY year. The tax benefits of this are amazing, and most IRAs can be traded out of just like a cash account. If you start thinking of your trading as a business, you will stop trea6ng your trading as a gamble.
Don’t Fall VicMm To Snafu #3 Trading Is A Business and Should Be Treated As So
Epic
Market Timing So many people have issues with this one; market 6ming is one of those things you pick up with experience and correc6ng all of the items we discussed before.
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trends or even worst you follow a so called “Guru” who is beTer at marke6ng than with trading. The boTom line is if you cant read a chart and understand it to the point where you can teach someone it you will not be taking full advantage of trading.
Snafu #5… Having UnrealisMc ExpectaMons
Inves6ng is about as complicated a subject as there is. That is partly why every investor has completely different expecta6ons. If you are involved in low-‐risk funds and slow moving stocks, you should have expecta6ons in line with what that can provide. That is why diversifica6on is so important. This topic 6es most of the other 5 Snafus together in that you can only move forward with your porgolio if you first honestly ask yourself, "How much do I want to make, and how much risk am I willing to take?" Your expecta6ons then must be constantly assessed, and re-‐assessed in line with the performance of your porgolio. If you start losing money, you shouldn't stay in the same investment and expect the same return over the long haul without making any changes. Don't fall in love with every decision, keep your porgolio fluid and look at it objec6vely. Only you have the power to make changes..
Snafu #4… Poor Market Timing You would be shocked how much money you are leaving on the table with poor market 6ming. Poor market 6ming is due to not having a watch list or just inexperience and not focusing on what you should be looking for so you solely trade on
This is two-‐fold, we are talking about overall diversifica6on as well as on a trade by trade basis. Proper diversifica6on in your porgolio as a whole is of paramount importance. The fact that you drink Starbucks every day is not enough reason for you to buy the stock! Get familiar with all markets, sectors, commodi6es, and indexes....not just what you see commercials for. Ask yourself if your are honestly prepared for when the market has a 40-‐50% retracement again. A large percentage of investors have yet to recover from the 2008 disaster, and it is only a maTer of 6me before the market goes back down. Make sure you have enough non-‐correlated assets in your porgolio, as well as alterna6ves to long-‐only investments. You should keep money in various different areas, and mul6ple different direc6onal strategies. That is the only way to not be handcuffed to the market having to go up as the only way you can profit. Don't "double down" on the next trade a_er a loser either, that is a sure fire way to have a huge drawdown. In this day and age, there are more than enough op6on strategies, short funds, and other choices to diversify properly. Cash is never a bad place to be either. Everyone can make money when the market goes up, but that isn't always the case. Have a disaster plan!
Snafu #6
Snafu #6… Bad Money Management/Poor DiversificaMon
A) Emo6onal trading: everyone has a different value of a dollar, but nobody likes to lose one. Be self aware enough to know and admit to yourself if it is 6me to just walk away from the trading plagorm for the day, week, or even month! A couple of losers in a row can have dire psychological effects on a person, and create a snowball effect of reckless trading decisions...there will ALWAYS be another trade...don't force the situa6on! B) Don’t Trade instruments you like, or are familiar with, instead of others you will make money with. Just because you drink Starbucks every day does not mean you should have 200 shares! Get familiar with all markets, sectors, commodi6es, and indexes...not just what you see commercials for! C) Proper diversifica6on. It is almost criminal to have a porgolio of long-‐only stocks. You should keep money in various different areas, and mul6ple different direc6onal strategies. That is the only way to not be handcuffed to the market having to go up as the only way you can profit. Think about your porgolio right now as you read this.......and ask yourself this ques6on, and be honest....."Am I prepared for a massive downturn in the market? Or have I been blinded and goTen a false sense of comfort by how much it has gone up in recent years?" A lot of people s6ll haven't recovered fully from 2008...don't be that investor this 6me around...be vigilant! Have a disaster plan! D) Investors think it smart to hang on to losers longer than they should when that money could beTer serve them elsewhere. I love when investors say, "It's a paper loss!” Oh yeah? And that makes it beTer why again? Don't ever be scared to take a loss and move on!
E – Book Overview
The Bottom Line
Analysis
1) Your alloca6on......how much is in what asset classes, and where you can move money to minimize drawdown and maximize return. 2) Introduce asset classes you may not be familiar with, but belong in your porgolio 3)Lets go over your fees, are you paying too much to your broker? 4) assess risk levels of your investments.....is your risk vs. reward plan working? 5) Assess how correlated you are to the market, for example, are you "handcuffed" into only making money when the market goes up? 6) Are you protected for when this market crumbles? will you make money when it goes down? nobody has a crystal ball and knows when this will happen.......it is beTer to be prepared! 7) Are you maximizing investments, costs, and market losses on your taxes? 8) What can you do right now.....today.....to take the first step towards maximizing your porgolio and protec6ng what you have?
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