From The Mind Of A Pro Trader - Convince Yourself Not To Buy It

Over the years I have found myself being gradually refined, on my way from being an amateur to a pro trader. As time passes and I trade amongst beginners, I find more and more diffferences that stand out. This is the normal progression showing itself in any trader over the course of their trading career. From amateur to pro, each of us will learn a vast amount of rules and lessons. In fact, as a trader you will never cease to refine your technique and learn new lessons. I wish to convey one of the biggest differences and rules I have learned. It is quite possibly the most notable difference I see when discussing a trade with those less seasoned than I.

Throughout the day, I search literally hundreds of charts to try and isolate the best/optimal patterns and setups for a profitable trade. When I glance at a chart my mind is racing through hundreds of pattern, price and time setups to see if one fits a possible trade. The amateur will isolate a chart and the first thing they are thinking about is the profit. This is the key difference with seasoned trader. When I look at a possible trade, my eye is scouting the chat for how much I could lose. I look at the pattern, moving averages, time of day along with many other possible issues. I am looking at my max loss before I even think about the profit. Once I have isolated my max loss and risk of the trade, then I move on to the profitable side to see if the risk reward fits. This is extremely important to do as a pro trader is concerned not what they will make at first, but what they will not lose. Think about it like a parent. A parents eye is scouting a park for possible things their child could hurt themselves on before they let their child go play. Often times an amateur trader is too caught up in the emotion of making money that they will forget to examine the downside risk and focus purely on the upside. This is disasterous.

When I find a trade that looks promising, I do my best to convince myself NOT to buy it. I make myself give 3 reasons NOT to buy this chart. If I cannot come up with any, I may take the position. This mentality is opposite of an amateur. I know this, I used to be one.

By: Gareth Soloway inthemoneystocks.com on February 3rd, 2009