From the previous article, I mentioned 4 trading rules, no 1 - Always do market research, no 2 - Limit your trading size, no 3 - Give your trade a reason, no 4 - Set exit level. In part 2, I would like to share certain rules that I follow after I have entered the trade.
Rule 5 - Never average out a losing position. If you are having a losing position, try to minimize the loss by cutting the number of position, never add on to it so that you average out each options price. Many people think that they can salvage the trade by adding on to average out each unit price, this is self deceiving, and you might end up doubling your loss easily. Do not hold on to the losing position, you can either cut the position size or accept the failure, move on to another trade quickly.
Rule 6 - Always update yourself with the Economy Calendar. The financial market is always influenced by the economic event, for example, jobless claim, FED meeting, oil inventory, housing start, and etc. These are the regular report that will affect the overall financial market, therefore affects your decision of when to enter and exit the trade as well.
Rule 7 - Always updates yourself with the Stock News. After checking the broad economy view, now zoom into your stock news. You need to understand how the industry and the sector are performing at this moment. After that find out the latest news of the particular stock you trade, in order to understand if it is the best or worst performer in this sector. Keep yourself update with the company news, certain decision from the CEO or board of director definitely will affect the stock performance.
Rule 8 - Always do analysis after market close. In previous article, I mentioned that we always need to do market research before market open. Now I would like to stress the importance of your stock analysis after market close. The market determine its price only when it close, this is the price that every buyer and seller agree after the war of tug. I usually like to use candlestick chart pattern to confirm if tomorrow I would enter the trade or exit the trade, because you only see the chart pattern after the market close. For example, how can you confirm that today is going to form a bullish engulfing pattern? You know it only when the stock rise up and exceed the open price of yesterday session until the end of the day. Therefore, you can have a better gauge after market close.
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