DO NOT PREDICT

Investors often look to experts and experienced traders for their predictions on how the market will trend. For example, trader often asked to predict where the Down Jones Index will be at any given time. The truth is, no one have any idea how to answer these questions. Predictions on the market are like throwing a dart. Most traders would be thrilled if they could predict where the market will be just minutes from now.

What many day traders need to remember, however, is that successful trading does not require predictions. It requires a system to deal with the markets no matter what direction they are trending. I always tell traders the same thing: keep it simple! There are three simple rules to remember when trading that are better than any expert’s prediction.

Buy when the market is going up, and sell when it is going down. I know this sounds overly simple, but too many investors forget to follow this very obvious advice. They may fall for concepts where you actually buy a stock even though it is falling. Although they may have read some persuasive defense of such a strategy, it goes against what should be obvious to everyone

Know when to exit. Most traders stay too long in the market. Either they fail to take profits or they let their losses run too far. Both mistakes can be disastrous. Trader should know when to exit a trade even before you enter it. If you haven’t determined your acceptable loss and your target profit from the outset, then you aren’t yet prepared to trade. As soon as you are in a trade, place a stop loss order and a profit taking order. Good traders use a stop loss, but great traders use a profit target in order to maintain a profitable edge.

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