Did you know that the biggest reason for failure among day traders is the holding of positions overnight?
It's true.
I've seen the destruction it can cause time and time again. And, it's why I stress to my students to close their positions every night.
No exceptions.
This all relates to discipline, which is the most important trait of a successful day trader. In fact, being disciplined outweighs education, analytical ability, instinct and trading skills in determining who will have a lasting career as a day trader.
A disciplined day trader begins -- and ends -- all trades within the context of a single trading day. That means no open positions are in the portfolio at the end of the day.
It seems like an easy rule to follow; doesn't it? But, once again, the powerful forces of greed and fear often come into play, and they can interfere with a trader's ability to think rationally and make the right decisions.
Let's say you have a great trade going. You feel the trade has legs. Closing time nears. You think the stock is probably going to gap up in the pre-market, and you don't want to miss that juicy gap. And, you don't want to pay your broker even more trading fees by selling the stock and re-buying it in the morning.
So, you listen to your greed and decide to hang onto the stock and hope for a big day tomorrow.
Or, let's say you have a losing position going into the close. You've already had a bad day. You can't stomach the thought of flushing away more money. The stock just didn't behave as you thought it would, but you tell yourself that you can't afford another loss and that the stock will bounce back tomorrow.
So, you listen to your fear and decide to hold the stock overnight and hope for a rebound tomorrow.
In both cases, you're taking a huge gamble. And, trading is not about gambling.
You're also relying on hope -- and hope has no place in trading, either.
The truth is that too many things can happen to a stock between the closing and opening bell. And, most of them are bad. This is particularly true during earnings season. But, it can happen any time.
For example, I had a friend who was down $1,500 on a trade. He didn't want to take the loss, so he lost his discipline -- just for a moment -- and decided to keep the stock overnight.
After the bell, the company was accused of accounting fraud.
The next morning, the stock opened down $50 from where my friend bought it. Because he was sitting on 1,000 shares, that meant he was looking at a $50,000 loss -- on a single trade.
To make matters worse, my friend compounded his trouble over the next few weeks, trying to average down. But, the stock kept tumbling and never recovered.
And, neither did my friend. That one overnight hold ended his trading career.
Now, I know what you're thinking. You believe that good things happen after the closing bell, too.
And, you're right. They do. But, discipline is about playing defense, not offense. You need to do everything possible to protect your capital. Doing so allows you to extend your trading career as long as you can. And, the longer you do this, the better chance you have of making a lucrative living at it.
But, you have to follow the number one rule of day traders: No overnight holds. Ever.
Because discipline is so important to successful trading, I talk a lot about the subject in my classes, especially in my introductory course. The class is free, so you're welcome to sign up and learn more about this critical element of trading. |
发表于 2011-10-11 20:08
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发表于 2011-10-11 20:23
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