I'm A Genius: A Beginning Stock Traders Nightmare
Years ago when I first began trading I was very diligent and then I got stuck on stupid and lost a lot of money. Take heed to my error as I believe that many fall into the same trap.
Before I began trading I purchased an options trading strategy (applies to stocks also) and I went through the very simple course. Part of the course talked about setting up rules to trade by. In these rules I determined how much I would commit to any individual trade, how much I would allow to be lost before I got out, along with entry and exit rules.
I studied the course until I was very familiar with what I was supposed to do. I then opened my account and placed my first trade based on the strategy that I had purchased and my trading rules. Remarkably, everything went according to plan. When I hit my profit objective I exited booking a 60-70% gain. I was ecstatic!
I then begin looking for my next pick and repeated the process. After a few trades I had a 100% success trade record. Some profits were higher then others, but I had made money on every single trade - and then something remarkable happened. I thought I was a genius. I knew that I would be the next stock picking prodigy and was going to become independently wealthy as a result of my trading abilities.
Of course, when this happened I then changed how I traded. Why would such a genius as myself need a set a rules. I knew what I was looking for and I knew how to pick stocks. Since I was so successful why would I want to limit how much I invested. If I went "all in" on my next pick I would increase my account substantially.
Well, I am sure you can guess the end of this story. Mr. Market is no respecter of persons and once I threw away my rules I began to rack up huge losses.
What is the moral of this story? Stick to your trading rules. Stick to the proper asset allocation as determined by the size of your account. Do what works and stick to it. Once you become over confident you will start making mistakes that will cost you dearly. Learn from my mistake and don't pay the same price that I did.
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