Top Stock Trader Mistakes
The following rules are an abbreviated version of the chapter called Do's & Don'ts from the book "The EZBreakout Method;" which can be found at [http://ezbreakouts.com/] It is imperative that you follow these rules to protect your capital. I have done the trial and error for you with my own personal money, so you don't have to suffer through the pain of figuring these rules out for yourself. These items are in no specific order and each of them are important.
1) BEWARE OF THE FIRST 15 TO 20 MINUTES OF TRADING: In the opening minutes of trading, the market can be chaotic to say the least. Breakout alerts that go off in the first 5 or 10 minutes can be misleading. Some might be real and some might be false signals. The key is to check out the VOLUME. However, in the first few minutes you might not be able to judge VOLUME. If only a few thousand shares have traded, leave it alone. Another thing that can happen, if you are trying to follow too many stocks, is that a dozen alerts can go off at the same time. The remedy for this is that you reduce your lists to the lowest number of potential breakout candidates. Focus on the very, very best charts.
2) BEWARE OF GAP UP OPENINGS IN THE STOCK MARKET: We have all seen those days when a big piece of news comes out before the opening bell and the DJIA vaults 100 points at the open. Beware of these days! You will have false signals galore. The only thing you can do is wait for the first 30 minutes to an hour and figure out which of your stocks is truly breaking out. The only way to tell is VOLUME, which leads to the next point.
3) KNOW WHEN ECONOMIC REPORTS ARE COMING OUT: One way to ruin a good day is to be unaware of when Economic News Releases happen. Economic news has a way of making the market flop around. It can also change the direction of the market in an instant. 9:45 AM and 10 AM Eastern Time numbers can be especially tricky. It's best to keep your positions smaller and stops tighter around these numbers or, even better, just liquidate right before. You can always buy your stocks back.
4) BEWARE OF "FED DAY": The day that the Federal Reserve Open Market Committee announces their current policy decisions (aka "Fed Day") is a very tough day to trade. I HIGHLY RECOMMEND that you cease trading and flatten any positions before the policy statement is announced at 2:15 PM eastern time. The gyrations after the announcement are absolutely impossible to trade. You can get burned very quickly. An additional day to be aware of is the day the "Fed Minutes" are announced. The Fed Minutes can make the market act like a mini Fed Day.
5) KNOW EXACTLY WHEN THE NEXT EARNINGS RELEASES ARE FOR THE STOCKS YOU ARE FOLLOWING: It is of utmost importance that you know when your stock is releasing earnings. NEVER HOLD A STOCK WHEN THEY RELEASE EARNINGS. We have all heard about the stock that opened 5 or 10 points higher on earnings, but let me tell you, that is the exception. Seven times out of 10, a stock will go down on the day they release earnings; NO MATTER HOW GOOD THE NUMBERS ARE! This is not an opinion, this is a fact. It just isn't worth the risk. For some reason, it took me several years to figure this one out. If you hold a stock overnight for the earnings release, you are GAMBLING. Trading is not gambling (no matter what your friends and family tell you).
6) BE CAREFUL OF TRADING STOCKS THAT JUST RELEASED EARNINGS AFTER THE MARKET CLOSED THE NIGHT BEFORE OR BEFORE THE MARKET OPENED: Many, many times I have seen a stock gap higher at the open on earnings, only to close DOWN substantially on the day. An opening like that can trigger an alert and cause you to make some very poor trades.
7) ALWAYS HAVE A STOP LOSS ORDER FOR EVERY SINGLE TRADE: This is another one of those things I can't overemphasize.
8) NOT EVERY TRADE WORKS: During a bull market, 7 or 8 out of 10 properly interpreted charts will work. Some won't! Get out right away when you are wrong!
9) UNEXPECTED NEWS: Weird market moving news events can happen during market hours. Headlines like "S & P downgrades Greece" or "Building Explodes in Manhattan" can have a sharp, sudden effect on the markets until participants find out what really happened. Also, news can come out on the industry you are trading or the individual stock itself. You don't want to get stuck in a position during these events, like a power or internet outage.
10) NEVER TRADE THE NEWS: As I have already pointed out, the news can be misleading. Stocks usually don't do what you expect them to do on news. How many times have you seen a stock beat earnings expectations and raise guidance, only to get hammered as soon as it reopens? Or, you have seen a piece of news that you knew would hit a stock, but the stock went higher? After 23 years in the business, I still am shocked at what stocks do on news.
1) BEWARE OF THE FIRST 15 TO 20 MINUTES OF TRADING: In the opening minutes of trading, the market can be chaotic to say the least. Breakout alerts that go off in the first 5 or 10 minutes can be misleading. Some might be real and some might be false signals. The key is to check out the VOLUME. However, in the first few minutes you might not be able to judge VOLUME. If only a few thousand shares have traded, leave it alone. Another thing that can happen, if you are trying to follow too many stocks, is that a dozen alerts can go off at the same time. The remedy for this is that you reduce your lists to the lowest number of potential breakout candidates. Focus on the very, very best charts.
2) BEWARE OF GAP UP OPENINGS IN THE STOCK MARKET: We have all seen those days when a big piece of news comes out before the opening bell and the DJIA vaults 100 points at the open. Beware of these days! You will have false signals galore. The only thing you can do is wait for the first 30 minutes to an hour and figure out which of your stocks is truly breaking out. The only way to tell is VOLUME, which leads to the next point.
3) KNOW WHEN ECONOMIC REPORTS ARE COMING OUT: One way to ruin a good day is to be unaware of when Economic News Releases happen. Economic news has a way of making the market flop around. It can also change the direction of the market in an instant. 9:45 AM and 10 AM Eastern Time numbers can be especially tricky. It's best to keep your positions smaller and stops tighter around these numbers or, even better, just liquidate right before. You can always buy your stocks back.
4) BEWARE OF "FED DAY": The day that the Federal Reserve Open Market Committee announces their current policy decisions (aka "Fed Day") is a very tough day to trade. I HIGHLY RECOMMEND that you cease trading and flatten any positions before the policy statement is announced at 2:15 PM eastern time. The gyrations after the announcement are absolutely impossible to trade. You can get burned very quickly. An additional day to be aware of is the day the "Fed Minutes" are announced. The Fed Minutes can make the market act like a mini Fed Day.
5) KNOW EXACTLY WHEN THE NEXT EARNINGS RELEASES ARE FOR THE STOCKS YOU ARE FOLLOWING: It is of utmost importance that you know when your stock is releasing earnings. NEVER HOLD A STOCK WHEN THEY RELEASE EARNINGS. We have all heard about the stock that opened 5 or 10 points higher on earnings, but let me tell you, that is the exception. Seven times out of 10, a stock will go down on the day they release earnings; NO MATTER HOW GOOD THE NUMBERS ARE! This is not an opinion, this is a fact. It just isn't worth the risk. For some reason, it took me several years to figure this one out. If you hold a stock overnight for the earnings release, you are GAMBLING. Trading is not gambling (no matter what your friends and family tell you).
6) BE CAREFUL OF TRADING STOCKS THAT JUST RELEASED EARNINGS AFTER THE MARKET CLOSED THE NIGHT BEFORE OR BEFORE THE MARKET OPENED: Many, many times I have seen a stock gap higher at the open on earnings, only to close DOWN substantially on the day. An opening like that can trigger an alert and cause you to make some very poor trades.
7) ALWAYS HAVE A STOP LOSS ORDER FOR EVERY SINGLE TRADE: This is another one of those things I can't overemphasize.
8) NOT EVERY TRADE WORKS: During a bull market, 7 or 8 out of 10 properly interpreted charts will work. Some won't! Get out right away when you are wrong!
9) UNEXPECTED NEWS: Weird market moving news events can happen during market hours. Headlines like "S & P downgrades Greece" or "Building Explodes in Manhattan" can have a sharp, sudden effect on the markets until participants find out what really happened. Also, news can come out on the industry you are trading or the individual stock itself. You don't want to get stuck in a position during these events, like a power or internet outage.
10) NEVER TRADE THE NEWS: As I have already pointed out, the news can be misleading. Stocks usually don't do what you expect them to do on news. How many times have you seen a stock beat earnings expectations and raise guidance, only to get hammered as soon as it reopens? Or, you have seen a piece of news that you knew would hit a stock, but the stock went higher? After 23 years in the business, I still am shocked at what stocks do on news.
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