Trade to Win - Proven Strategies to Make Money

c17 JWBT016-Busby September 30, 2008 14:43 Printer: TBD

166 THE WILD CARDS

head. In that way, when prices reach your target, your orders will be in line

for execution. Limit orders are generally used for profit taking. With limit

orders, you are not guaranteed a fill. The orders are filled on a first-come,

first-served basis. If there are 3000 orders waiting to be filled at $1400 and

you are order 3001, you may not get filled and prices may move against you.

Get in the cue early by executing your profit orders immediately after you

take on your position.

PEARL 26

When entering a position, always know where the exit resides.

In addition to profit targets, always know where you will place your

stop/loss order. Many traders use mental stops. Those do not work well.

Often, we plan to get the stop/loss orders in and just do not do so. Instead,

prices move against our position and we just keep holding the position and

losing more and more money. If the stop/loss order is placed at the same

time that the trade is made, it helps keep us honest and real.

Manage Every Trade

Over the years, I have learned the importance of managing every trade that

I make. I have losing trades and I lose money—every trader does. But I am

a hands-on trader and when I see prices going against me, I react. When

a trade is not going my way, I may tighten my stop and move it closer to

the trading price, or I may liquidate some of my positions without making

a profit or with a small loss. I will not hold all of my positions and sit on my

thumbs while the market takes me to the cleaners.

Once in a trade, I keep my eyes on key numbers and market indicators.

If market indicators like the NYSE tick, the Nasdaq tick, or the V-Factor

turn against my position, I react. If a key number is broken in an unpre-

dictable manner, I respond. In the old days, I used a different strategy. If

prices moved against my position, I added to the position. For example, if I

took a long position in IBM and IBM fell in price, I added to the position at

the lower price. If prices continued to deteriorate, I continued to buy until

I had invested my entire amount of cash. Many traders use that approach

today. It is called averaging down. Today, I know the foolishness of such a

strategy and do not do it. Why fight the market? If prices are going down, I

will not be a buyer. I will liquidate my long position before too much money

is lost.