This article was submitted to us by one of our users: crosshelix. We couldn’t agree more with the article and it speaks to a phrase we use alot at Stockhaven.com, “Don’t trade to make money, make money trading.”What? Why would I trade if I didn’t want to make money?
Let’s finish that statement then: Don’t trade to make money, make money trading. Said another way, if you simply make successful trades (linked our article explains our definition of a “successful trade”) then the profits will come.
So what’s the difference? If you trade to make money, you’re going about it backwards. What if the stock tanks? No profits — possible losses. If you followed the plan (which I’m sure you had before entering the trade — if not, re-read this helpful article here), your losses will be minimal — but they will still be losses.
Now what? Do it again? And again, you follow your plan and end up with minimal losses. This can be daunting on the best of days — especially if you see your account shrivel up with less than $500 to trade. At that point, sit back — watch — and resist trading until you can build up your account again. True — you may only need that one good trade to be “back on top,” but that is when your emotions can take over the trade and that is never a good thing.
So what went wrong? You’re trading to make money — and being in chat you see a lot of people are doing this scalp thing and making profits so that’s what you do. Right? Um, maybe not actually. The problem here is scope. Learn the scopes, define your scope and trade within that scope — don’t just assume all traders are created equally.
So what is a scalp trade? Scalps are relatively quick trades for usually minimal percent rises. Profits are profits, right? If you’re trading to make money, yes. But think about it: If you have $500 and you trade for 3% profits, you’re looking at a total return of…. $15. That’s profit, true. But it cost you how much in commission to make that $15? Net: Loss.
If you have $5000 in for that same trade, you’re looking at a total return of $150. Even after commission, that’s profit. This isn’t to say scalping can’t be done on minimal funds — but it is to say that scalps are better suited for those traders with enough capital to trade larger amounts. Just because you see another trader get in for a scalp, don’t think the fact that you need more than 3% that you should get it.
“Really needing” an extra 10% doesn’t affect the price action at all. If it did, chat would rule the share price every day. Remember, everyone’s goals are going to be different. If you follow other traders into a trade who have different goals then you, then the trade may not work out for you like it did for them. Be sure to understand what your goals are for each trade and make your trades based on what they are, not what other people’s goals are.
Gap plays are best identified and traded at the end of the market day. This is another possible pitfall of those with minimal trading funds. As outlined in the previous article, first day promo gaps are usually good enough for those in the $500-$2500 range. Usually. If you’re going to play a gap, these are the ones to bet on. Other than those — and there are a lot of opportunities for gaps — do not attempt to play a gap if 5% won’t get you ahead. 5% is a good gap — not great (as today we had a 15% gap), but good.
Taking that into account, that $500 position would only gross $25. After commission — especially if you’re with a broker that charges based on the number of shares — you could well find yourself right back where you started or even at a loss. Again it’s a matter of scope — if you have enough capital to get a good position, even a 5% gap will be a good way to start the day. If you don’t, let the urge to buy pass.
This takes us back to the original statement: Don’t trade to make money, money trading: Make successful trades (be sure you read our article on “successful trades,” it’s a must you understand what we mean by it because it’s not what you think) and the profits will come.
Successful trades consist of multiple parts: Have a plan to get in AND OUT — both profit and loss exits before you ever hit that “Place Order” button. Feel free to modify that plan if the stock goes up faster or slower than you expected it to, but don’t lower your “loss” exit. The next part is possibly even more important for new traders or those with limited funds: Know if you will profit if everything goes according to your plan. Not your “I need that 100%+ gain” plan. The realistic plan.
It’s not realistic to expect the scalp someone else is playing to pan out to 15% just for you. It’s not realistic to expect a non-first day promo gap play to net you 15%. If you can’t profit from a realistic trade — no matter how good that trade may be — don’t make it. Maybe you’ll skip the trade and it’ll pan out to a 50% gap. Maybe you’ll skip the scalp trade and it’ll jump 50% in minutes. To have made those trades could have put you where you wanted to be, but they would have been bad trades for your scope.
If it’s not in your scope, it’s not a good trade — and the goal here is to learn to make good trades. Moreover, using the scenario just described, it may trick you into developing bad habits. Those bad habits are very hard to undo so it’s best to just get into the habit of them. There are plenty of other types of trades that will help build a minimal account. Leave the scalps and non-promo gaps for when your account can afford them.
Make successful trades and the profits will come.
You are invited to watch real time trading videos with Stockhaven which can be found in the Trading University. Come back often. There are more videos and articles added all the time.
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