Buying the correct stock and the correct number of stocks is all to no avail if you do not know when to exit a position. In fact, having a strategy that defines your exit is as important as defining your entry. This is simply common sense. However, most traders do not devote any thought to this important aspect of a trading system.
Before you enter a trade, you should know where your exits are. There are at least two for every trade. First, what is your stop loss if the trade goes against you? Secondly, what is your trailing stop if the trade moves in your favour? Remember these stops must be written down. Mental stops don't count.
Sadly, most novice traders are doomed to break the age old rules of trading by “letting your profits run and cutting your losses short.” They do this simply by failing to define their exit rules. The truth is that, psychologically, humans are hard wired into believing that they must be right.
Here’s what I mean, when the undisciplined trader enters into a trade they expect to profit from this trade. If, however, the stock price goes against them, they further feel they are “right” and justify why they bought the stock by holding onto it until it turns a profit. Unfortunately, and most likely, their losses are compounded as time passes.
Similarly to the case of a loss, if the position moves in their favor, the undisciplined trader sells the position at first sight of any profit. They have an inherent need to crystallize this winning trade and be “right”. Clearly, this is in direct conflict to the rule of letting your profits run.
Both these situations can be avoided by predefining exit points. Think of setting your exits as an ejector seat when things go wrong and a seatbelt to strap you in when things go right. As with entry conditions, exits should be precisely defined and 100% mechanical.
You are now ready to document your exit rules. Using both Trading Secrets Revealed and the package containing your entry signals, your next task is to get your exit rules written down.
YOUR EXIT RULES
By documenting your exit rules you have just put yourself into the top 2% of traders. Congratulations!! You are almost in the top 1%.
Let’s get your exit rules right.
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IMPORTANT:
At this point you should have now have fully documented the 3 components of your trading system… That said, we have not yet discussed perhaps the most important area of designing any trading system. It is this area that will provide you with the confidence you need to trade your system. Be sure to keep reading.
Choosing Your Charting Software
A trading system is of no use without the tools to implement the system. However, choosing a package, or deciding whether to use one at all, can be very confusing to a beginner. This is especially true when you consider that there are literally hundreds of software packages available to assist traders.
When looking at pages, do not spend a thousands of dollars buying any charting software. Often the price is inflated to capitalize on the mentality that the more expensive the better. Truthfully, most charting packages perform very similar functions and a charting package under $1000 will perform just about all of the tasks required by even the most advanced traders.
Secondly, choose a charting package that has a large user base… that way, when and if you need help, there will be plenty of support channels available to you.
Personally, I use and recommend MetaStock (I have used it for years). It contains just about every bell and whistle a trader would need. It is also easy to use and is considered a market leader for good reason. In fact, MetaStock has been voted the winner of the "Stock and Commodities Reader's Choice Award for best analysis software" 11 times.
By far the most powerful feature of MetaStock is the Exploration module. Quite simply the explorer gives the user the ability to scan through tens of thousands of securities at a single time identifying only those that meet predefined criteria. This function alone makes MetaStock invaluable. It almost completely automates your trading system.
The exploration module is just one benefit; MetaStock also has the advantage of some invaluable back testing options too (we will cover the importance of these next chapter).
The other good news is that, Equis boasts a user base of over 100,000 users for their MetaStock products. So you can be sure to find any support your may need.
You won’t have to look very hard for support either; I have set up a website with the sole purpose of helping the MetaStock community www.meta-formula.com. On this website alone, you will find all the support you need to get the most out of MetaStock.
No matter what charting software you do decide to go with, I will offer you a word of advice. It is important to recognize that software is simply a tool that aids a trader in undertaking their business activity. There is no such thing as a software package that does everything for you.
Steer clear of any packages that gives buy and sell recommendations. Commonly referred to as “black box programs.” I have found, with rigorous testing, that black box program packages simply do not work.
In general traders who believe in the myth that you can just hand over your hard earned capital to a computer program and sit back and collect checks and build wealth are not dealing with reality at all.
They want to make the money successful traders do, yet they do not want to put in the hard work necessary to develop the skills needed to become and stay successful.
Your time and money is best spent elsewhere.
While I do I recommend MetaStock, these are some other packages worth looking into include: Advanced Get, OmniTrader, SuperCharts, AmiBroker, Market Analyst and TradeStation.
When you’re ready, in the space below, write down which charting software you plan to use:
Lastly, charting software is not
Nevertheless, as you would imagine I have tested just about every data provider you can find, after all that, I have found one does just about everything.
If you’d like to learn more about this total data management solution that I have found click here.
Not only does it support stocks, futures, and foreign exchange for markets in
Alternatively, you may like to do some research. Once you have found an appropriate data provider in the space below, write down which data provider you will use:
Let’s get your charting software & data right.
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