The 1,2,3-method of trading

Today I want to explain in more detail what I mean by my 1,2,3-method when it comes to trading.

Blue picture of stock chart and text about the 1,2,3-method of stock trading

How come some people always seem to be able to put a cooler on their nerves and consistently make money trading?

Is it because they have special abilities that you don’t have and never will have? Or is it because they are unbelievably lucky when it comes to trading and always bet on the right horse?

No. It’s because behind successful trading there are rules that they strictly adhere to.

These rules don’t come out of the blue, and have in fact often been learned the hard way by people in the business.

It may seem easy to stick to a number of rules, but I can tell you from my own experience that it is not.

This is why I’m writing this article. So that you don’t have to make the same mistakes as I have throughout the years and can start right away being what you really want to become – a successful trader.

I call my method the 1,2,3-method.

By adhering to my rules you can completely remove the emotions that inevitably surround the business of trading and focus on identifying the right moments to enter and get out of a trade instead.

The method is modified from Quint Tatro’s trading method which he has shown to be very successful in his career.

In this post I will lay out the fundamentals of a successful trading strategy and show you how you can consistently make money in the market.

What do you need?

As a minimum you need an internet connection, a trading account and some money on that account.

The trading account does not need to be advanced. The only thing required is an account that automatically buys and sells your stock at a given price level.

How much money you have is up to you, but I would advice against trading with less than $200,000.

If you have less than that you can still trade, but it’s difficult to use the economies of scale that present themselves when you have those $200,000 in your account.

In other words, you can trade for fun with less than $200,000, but not for a living.

You then need to use software that represent the different charts that you will use as a basis for your trading.

The best free software that I have found is called FreeStockCharts.com and that allows you to customize the charts in a way that best suits you.

They also have a paid version which obviously is better, but if you are just starting out you don’t need anything else than the free version.

So what is the method really?

In essence it’s about quantifying your risk.

Let’s say that I’m prepared to lose $500 on each trade.

Then I look at the chart and identify the price level where I want to get in as well as the point where I deem my trade to be a failure.

That is where I put my stop.

I then buy exactly so many stocks that my final loss will be $500 if things go bad.

That way I know before hand how much money I will lose if things don’t turn out the way that I want.

That means that I have mentally prepared myself for a loss of $500.

It’s the equivalent of betting on the race track, because if the horse that I have bet on will not win, my money is lost.

That is one of the advantages betting on the race track has over trading the market.

1, 2, and 3

If the stock goes the other way (which it should given the odds), I take a third off the table when prices have advanced 1 x the risk.

For example, if I get in at $10.00 and my stop is at $9.00, then 1 x is at $11.00.

The second third, I take off the table at $12.00 and the final third at $13.00.

By knowing beforehand when and where I will leave the trading, I don’t have to play with my own emotions.

Trading is difficult enough as it is. Don’t let yourself be your worst enemy.

That’s it. Enjoy your trading.

This post is a follow up on my guide on how to use technical analysis in trading.

Conclusion:

Today I’ve tried to explain how I personally approach trading and I do it with a method that I call the 1,2,3-method of trading.

It’s about recognizing that you are your own biggest enemy and that you have to manage your own risk.

You do that by taking the emotion out of your trades.

First I identify where my trade is no longer regarded a success. That is where i exit.

 

 

 

 

 

 

 

 

 

 

Popular articles:

Guide to Technical Analysis


Guide to Value Investing


Using Microsoft Excel in finance


Subscribe to RSS

Business Blogs - The Blog Index

Follow me on Blogarama