How You Can Be Sabotaging Your Trading - And Not Even Know It!

By: Stuart McPhee
Submitted: 2007-01-17 16:15:10
Print this article | Tell a friend | For publisher | Social Bookmarking
Rating:
 

Whilst trading routinely involves decision making, there are no more important decisions you have to make than when to close positions. Quite a few traders often overlook this part of trading or underestimate how important that it is. It is selling that impacts directly on whether or not you make any money trading. Buying shares is simply a means of putting yourself in a position to make money from trading.

There is a typical experiment which is conducted in Economic and similar classes, which relates well to selling shares. It involves dividing a room of people into two groups. Everybody in the first group is handed an imaginary coffee mug. People in the second group receive nothing.

Everybody in the first group is asked to write down on a piece of paper how much they would be prepared to sell their coffee mug for. Everybody in the second group is asked to write down on a piece of paper how much they would be prepared to buy the coffee mug for.

The amounts from all people within each group are compiled and an average calculated for each group. Generally speaking the average amount from the owners of the coffee mugs is double that of the average amount from the potential buyers of the coffee mugs. This observation supports the Endowment Theory.

The Endowment Theory suggests that people who own something place a greater value on it than those who do not have it. This is applicable in the sharemarket, and can affect your decision making when deciding to sell shares that you should be selling. Often you will find yourself owning shares and believing that they are worth more than what the present share price is. The only unfortunate thing about that is the real price is what it is presently trading for on the market and not what you think they should be worth.

This can affect you by convincing you not to sell shares when you may be best advised to sell them to stop any further potential loss. You may have bought shares for $4.00 and set a stop loss at $3.50 for example. A week later the shares are trading at $3.50 and you have received your cue to sell them. Thoughts enter you mind about how it was only a week ago that you paid $4.00 for them and how you think they are still worth that especially when you consider the report they released last week concerning future growth, for example.

These thoughts can paralyse you to take no action and not cut your losses and consequently have you breaking one of the most important time tested rules you can follow.

Stuart McPhee is recognized as a leading trading coach and expert when it comes to developing solid and profitable trading plans.

Discover what most traders never realise which leads to their downfall. Learn about the importance of having the right trading mindset, sound money management and a solid method - The 3 Ms! Click Here ==> http://www.trading-plan.com

Receive Stuart’s free trading tips by signing up for his ezine at: ==> http://www.trading-plan.com/ezine_registration.html

Article source: Expert Articles

Most Recent Articles in Currency Trading category

  • The Truth About Forex Trading Softwares and Expert Advisors - By: Richard Golman
    This article attempts to show readers many experiences of the author using various expert advisors and automated forex trading systems.This, primarily is to assist readers to make a better and informed decision as regard purchase of highly profitable automated forex trading software. This article will therefore be of immense benefit to aspiring forex traders wishing to take his trading to a new pedestal.
  • How to Pick Optimized Automated Forex Trading Robots and Systems For Maximum Profitability - By: Richard Golman
    This article tries to illuminate the features necessary to look out for before forex traders buy automated trading software. There are many scam forex products out there, but this does not for once suggest there are no profitable ones too. The big question is, how do traders recognize good expert advisors? This is what this article endeavor to address. Read on...
  • Profit in Forex and Make More Money Using Proven Automated Trading Software - By: Richard Golman
    This article attempts to expose the mistakes many traders of the forex market make, and why such mistakes are the culprits responsible for often less-than-glamorous performance of many of these traders. By following the invaluable suggestions articulated in the article, readers will learn the most pertinent lesson in forex trading, what you don't have shouldn't be an obstacle to what you want to have.
  • An Understanding Of Forex Charts Is Essential To The Successful Trader - By: Donald Saunders
    For an increasing number of Forex traders charts are an essential tool in reaching trading decisions and a knowledge of Forex charting and technical analysis is now a fundamental part of any currency trading course.
  • 5 Reasons For Entering The Exciting World Of Currency Trading - By: Donald Saunders
    Currency (Forex) trading is extremely popular with small private investors around the world and this is not surprising when you look at the advantages which this lucrative form of investment provides.
  • Currency Trading Without A Clear Strategy Is The Road To Financial Ruin - By: Donald Saunders
    Many novices are enticed into Forex trading by the promise of high and low risk or risk free returns for a minimal investment and rush head first into trading without any clear plan. As we show here however, currency trading without a clear strategy can be a fast route to financial ruin.
  • A Good Forex Trading Course Is A Must For All Beginners - By: Donald Saunders
    If you are tempted to participate in the world's largest and most liquid financial market and share in the profits which more and more small investors are enjoying today then do not make the mistake of doing so without at least some basic training.
  • The Best Hours To Trade Forex - By: Donald Saunders
    If you are new to the world of forex trading then one question which you will surely be asking, and which we answer here, is just when is the best time of day to trade?
  • Forex Trading Software Is The Foundation Of Successful Trading - By: Donald Saunders
    At the very heart of any forex trader's toolbox is a forex trading software package and understanding the power of this package and choosing the right package is critical to any trader's success.
  • Simulated Forex Trading Can Save You A Fortune - By: Donald Saunders
    There is no better way to learn forex trading than to actually be able to sit at your computer and practice trading in the live environment, but this can be a very costly exercise. Today, however, the advent of forex trading simulators makes this both simple and safe.