Posted by InTheMoneyStocks.com Wednesday, March 28, 2012, 11:18PM ET
Read 1411 times
Throughout the day, I search literally hundreds of charts to try and isolate the best/optimal patterns and setups for a profitable trade. When I glance at a chart my mind is racing through hundreds of pattern, price and time setups to see if one fits a possible trade. The amateur will isolate a chart and the first thing they are thinking about is the profit. This is the key difference with seasoned trader. When I look at a possible trade, my eye is scouting the chat for how much I could lose. I look at the pattern, moving averages, time of day along with many other possible issues. I am looking at my max loss before I even think about the profit. Once I have isolated my max loss and risk of the trade, then I move on to the profitable side to see if the risk reward fits. This is extremely important to do as a pro trader is concerned not what they will make at first, but what they will not lose. Think about it like a parent. A parents eye is scouting a park for possible things their child could hurt themselves on before they let their child go play. Often times an amateur trader is too caught up in the emotion of making money that they will forget to examine the downside risk and focus purely on the upside. This is disastrous.
When I find a trade that looks promising, I do my best to convince myself NOT to buy it. I make myself give 3 reasons NOT to buy this chart. If I cannot come up with any, I may take the position. This mentality is opposite of an amateur. I know this, I used to be one.
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This article was first published - August 8th 2009