Friday, April 21, 2006

 
PROFIT TAKING

Psychologist, Dr. Daniel Kahneman (The Nobel prize in economics - the field of behavioral economics) basically shows that investors are irrational, but predictably irrational. They continue to make the same mistakes over and over. One of the biggest is a common inability to take a loss: taking a loss is so painful, it is simply avoided.

A trader's most valuable commodity is trading capital. What is the most important rule for a trader? Preserve your capital. This is what keeps a trader in the game, and it is foolish to do anything that will jeopardize it. Subsequently, to preserve a trader's capital, there are rules that help a trader, whether in short, intermediate or long term play.

The rules listed below are suggestions. Only the trader can decide which rule is important. However, when a trader decides on a set of rules, they should be used consistently. Rules make up a trader’s system and are enforced by discipline.

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