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Stock and Options Millionaire Principles
By: Jason Ng@


INTRODUCTION

Having been trading stocks and options in the capital markets
professionally over the years, I have seen many ups and downs.

I have seen paupers become millionaires overnight...

And

I have seen millionaires become paupers overnight.

One story told to me by my mentor is still etched in my mind:

"Once, there were two Wall Street stock market multi-millionaires.
Both were extremely successful and decided to share their insights
with others by selling their stock market forecasts in newsletters.
Each charged US$10,000 for their opinions. One trader was so curious
to know their views that he spent all of his $20,000 savings to buy
both their opinions. His friends were naturally excited about what the
two masters had to say about the stock market's direction. When they
asked their friend, he was fuming mad. Confused, they asked their
friend about his anger. He said, 'One said BULLISH and the other said
BEARISH!'"

The point of this illustration is that it was the trader who was
wrong. In today's stock and option market, people can have different
opinions of future market direction and still profit. The differences
lay in the stock picking or options strategy and in the mental
attitude and discipline one uses in implementing that strategy.

I share here the basic stock and option trading principles I follow.
By holding these principles firmly in your mind, they will guide you
consistently to profitability. These principles will help you decrease
your risk and allow you to assess both what you are doing right and
what you may be doing wrong.

You may have read ideas similar to these before. I and others use them
because they work. And if you memorize and reflect on these
principles, your mind can use them to guide you in your stock and
options trading.

PRINCIPLE 1

SIMPLICITY IS MASTERY

When you feel that the stock and options trading method that you are
following is too complex even for simple understanding, it is probably
not the best.

In all aspects of successful stock and options trading, the simplest
approaches often emerge victorious. In the heat of a trade, it is easy
for our brains to become emotionally overloaded. If we have a complex
strategy, we cannot keep up with the action. Simpler is better.

PRINCIPLE 2

NOBODY IS OBJECTIVE ENOUGH

If you feel that you have absolute control over your emotions and can
be objective in the heat of a stock or options trade, you are either a
dangerous species or you are an inexperienced trader.

No trader can be absolutely objective, especially when market action
is unusual or wildly erratic. Just like the perfect storm can still
shake the nerves of the most seasoned sailors, the perfect stock
market storm can still unnerve and sink a trader very quickly.
Therefore, one must endeavor to automate as many critical aspects of
your strategy as possible, especially your profit-taking and stop-loss
points.

PRINCIPLE 3

HOLD ON TO YOUR GAINS AND CUT YOUR LOSSES

This is the most important principle.

Most stock and options traders do the opposite...

They hold on to their losses way too long and watch their equity sink
and sink and sink, or they get out of their gains too soon only to see
the price go up and up and up. Over time, their gains never cover
their losses.

This principle takes time to master properly. Reflect upon this
principle and review your past stock and options trades. If you have
been undisciplined, you will see its truth.

PRINCIPLE 4

BE AFRAID TO LOSE MONEY

Are you like most beginners who can't wait to jump right into the
stock and options market with your money hoping to trade as soon as
possible?

On this point, I have found that most unprincipled traders are more
afraid of missing out on "the next big trade" than they are afraid of
losing money! The key here is STICK TO YOUR STRATEGY! Take stock and
options trades when your strategy signals to do so and avoid taking
trades when the conditions are not met. Exit trades when your strategy
says to do so and leave them alone when the exit conditions are not in
place.

The point here is to be afraid to throw away your money because you
traded needlessly and without following your stock and options
strategy.

(For a disciplined and proven approach to stock and options trading,
please visit http://www.mastersoequity.com/)

PRINCIPLE 5

YOUR NEXT TRADE COULD BE A LOSING TRADE

Do you absolutely believe that your next stock or options trade is
going to be such a big winner that you break your own money management
rules and put in everything you have? Do you remember what usually
happens after that? It isn't pretty, is it?

No matter how confident you may be when entering a trade, the stock
and options market has a way of doing the unexpected. Therefore,
always stick to your portfolio management system. Do not compound your
anticipated wins because you may end up compounding your very real
losses.

PRINCIPLE 6

GAUGE YOUR EMOTIONAL CAPACITY BEFORE INCREASING CAPITAL OUTLAY

You know by now how different paper trading and real stock and options
trading are, don't you?

In the very same way, after you get used to trading real money
consistently, you find it extremely different when you increase your
capital by ten fold, don't you?

What, then, is the difference? The difference is in the emotional
burden that comes with the possibility of losing more and more real
money. This happens when you cross from paper trading to real trading
and also when you increase your capital after some successes.

After a while, most traders realize their maximum capacity in both
dollars and emotion. Are you comfortable trading up to a few thousand
or tens of thousands or hundreds of thousands? Know your capacity
before committing the funds.

PRINCIPLE 7

YOU ARE A NOVICE AT EVERY TRADE

Ever felt like an expert after a few wins and then lose a lot on the
next stock or options trade?

Overconfidence and the false sense of invincibility based on past wins
is a recipe for disaster. All professionals respect their next trade
and go through all the proper steps of their stock or options strategy
before entry. Treat every trade as the first trade you have ever made
in your life. Never deviate from your stock or options strategy.
Never.

PRINCIPLE 8

YOU ARE YOUR FORMULA TO SUCCESS OR FAILURE

Ever followed a successful stock or options strategy only to fail
badly?

You are the one who determines whether a strategy succeeds or fails.
Your personality and your discipline make or break the strategy that
you use not vice versa. Like Robert Kiyosaki says, "The investor is
the asset or the liability, not the investment."

Understanding yourself first will lead to eventual success.

(To understand what kind of trader you are, there is a fun and easy to
use psychometric test you can take at http://www.mastersoequity.com/MOE_FREE_REPORT.htm)

PRINCIPLE 9

CONSISTENCY

Have you ever changed your mind about how to implement a strategy?
When you make changes day after day, you end up catching nothing but
the wind.

Stock market fluctuations have more variables than can be
mathematically formulated. By following a proven strategy, we are
assured that someone successful has stacked the odds in our favor.
When you review both winning and losing trades, determine whether the
entry, management, and exit met every criteria in the strategy and
whether you have followed it precisely before changing anything.

In conclusion...

I hope these simple guidelines that have led my ship out of the
harshest of seas and into the best harvests of my life will guide you
too. Good Luck.

Source: Articles Universe: http://articlesuniverse.com

Associate Site.
http://giuelith.wordpress.com
 
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