Foundations: Disciple Is Wisdom

Over the last few months, I have been covering my main take away from each Foundations of Stocks and Options classes from Level 1 and Level 2. It has been an excellent introductory journey in the world of technical trading, as I have developed a solid understanding of how the stock market functions. I have gone from hearing about stock market terms and concepts to understanding them. Now, here at the start of FOSO Level 3, it is time to move pass understanding the basic concepts of trading. It is time to build a foundation for more than just learning, a foundation for action, a foundation for doing.

In class one of FOSO level three, there is a shift that turns the focus of the camera from the stock charts and puts the camera lens on the individual trader. After all, there is one element that will remain constant through all your trades, and that is you. Regardless, if you are trading stocks, bonds, forex, or metals, you will always be at the center of every trade you place. Thus, it would behoove all of us to have guidelines and rules in place to guard our trading mindset and actions. A checklist of statements that, when they are met, gives us the green light to execute our current trade, and when they are not met, protects us by raising red flags over our current trade.

Some good examples of this are as follows:

  • Always trade the same direction the stock is trending. Thus, if the stock is trending up, then your trade should be bullish.
  • Always trade the same direction the sector in which the stock belongs is trending. Thus, if the sector is trending up, then your trade should be bullish.
  • Always trade with a stop. Let’s repeat that one. Always trade with a stop.
  • If you lost money on a stock, stay away from trading that stock again for a few days. Give yourself time to make logical decisions instead of emotional decisions.
  • Make sure each of your trades is five percent or less of your trading account as trading only part of your account will help limit your overall risk.

In closing, trading is stressful. The best way to deal with the stress is to remove it from the equation as much as possible, and working from a checklist or a set of guidelines will do just that. Granted, the set of rules which you develop for your list will be different, but the end goal of preventing bad trades, reducing emotional involvement, and conserving your capital are the same. So, remember, if a potential trade fails to get a full green light from your checklist, it is best to avoid the trade. Stay disciplined with your checklist, and trigger trades with your facts instead of your feelings.

If you wish to learn more regarding this topic, please consider signing up for our Foundations of Stocks and Options class, which you can do here. Thank you for reading, and we look forward to seeing you in next week’s Foundations of Stocks and Options blog!