When it comes to learning about trading, it’s important to remember that there’s more to your education than figuring out when you should make an investment. It’s true that you should always have a good reason for getting involved with a trading position, but it’s also worth remembering that you need to know when to get out of a trade too. Even with an extremely successful trading strategy, there’s a good chance that some of your trading positions will begin to fail over time. The best thing you can do is know when to pull out before you lose too much money. Here we’re going to go beyond the Finviz screener tips and other solutions that teach you how to get involved with a trade and look at when you need to stop trading.
Figuring Out When to Stop Trading
When you start trading for the first time, there’s a good chance that you’ll notice two emotions coming into play that may attempt to convince you to make dangerous decisions with your money. One emotion is greed. The feeling of greed tells you that you need to keep waiting for your investment to earn more and more value before you sell. Unfortunately, the longer you wait, the more chances you have of something going wrong with your trading position. On the other hand, a feeling of fear means that you want to trade as soon as the value of your stock begins to dip – even if the dip is only very slight. Since stocks regularly have their ups and downs in the trading market, listening to fear too early could mean that you end up selling a stock just because it earns a lot of value. The only way to stop fear and greed from taking over with your trading decisions, is to make sure that you have a strategy in place.
Creating a Strategy with Profit Targets and Stop Losses
Though everyone has their own unique strategy for figuring out when they need to get into, or get out of a trading position, profit targets and stop losses can help a lot when you’re just getting started. A profit target allows you to aim for a specific amount of increased value in your share, before you ignore your feelings of greed and sell the share, no matter what happens.
On the other hand, a stop loss allows you to determine how much risk you’re willing to accept with each trade before you get involved with a new business. Your stop loss will tell your broker when to sell your assets in a company before the stock value drops too far. With a stop loss, you don’t have to worry about fear or greed getting the best of you, as you’ll always be ready to get out of a trade when it’s going to have a bad impact on your finances. Stop losses and profit targets aren’t always perfect, but they force you to think carefully about what you’d like to earn from each trade, and what you could afford to lose. This way, you’ll ensure that you’re making more informed decisions about every potential stock investment.
