here's a write up I did a couple of years ago; it's also Friday, so good day for things like this

Trading and Baseball Analogies:

There is a book called the ‘Trading Athlete’ which focuses not on charts and technical indicators, but on mental preparedness and psychology and discipline required for successful trading. The reason that the book is called Trading Athlete is because it documents many examples of how former professional athletes make great traders because the discipline and control of their psychology (which they mastered in their sports career) makes the perfect amalgamation for a great trader.  There are many professional baseball players who have become very successful traders, for example.  

You can make a lot of good analogies with baseball and successful trading.  One such analogy is to focus on your batting average, not each swing at the bat. What I mean about this is that a good hitter doesn’t focus on an individual strikeout, he focuses on his total batting average over a period of time, which is a collective average of the number of times he makes a hit vs striking out.  Therefore, don’t place too much focus on one or two or three losing trades you might have (especially if during those trades you followed your trading rules) you are never going to have 100% winning trades and you don’t have to, what matters is your long-term average.  Instead, try to look at your last 20 or 30 trades, not your last 2 and 3 trades. Also, you don’t need a high winning percentage if you are focusing on taking trades with a good risk/reward ratio such as 1/3 etc where you can easily do very well via winning only 60% of your trades.

Another baseball analogy: know when to swing for hits rather than home runs:

While the focus of this eBook will be swing trading strategies primarily, which let’s call those ‘home runs’ via the baseball analogy. The market is not black and white, and it’s complex. It’s a good idea to know the ‘field position’ of the general market and/or sector you are following when looking at swing trade candidates. Let’s say the market has been up 5 days in a row and is very overbought, that might be a time not to consider a certain trade idea you are monitoring as a swing trade candidate at the moment. You could either pass on it or instead take a trade but shoot for a ‘single’ a hit, rather than swinging for the stand’s ‘homerun’. This may cause you to change your strategy as far as how aggressively you take profits and stay in the position.

Stops, use them, and adhere to them:

Entering a trade is always much easier than exiting a trade because of the emotions involved, just like it’s much easier to buy a Timeshare than it is to sell one or get out of one LOL.  Whenever you buy a stock, always have an exit strategy and immediately place a stop. First off you need to know where your stop is in order to calculate your risk/reward ratio. 

Don’t fall trap to the ‘I’ll just give it a little more room trap’.

This is an emotional rabbit hole that can happen whenever you buy a stock and then do not immediately or soon thereafter place a hard stop loss order. If the stock goes up nicely after you buy it, you generally don’t have a problem, however if the stock goes against you, and you don’t have a hard stop loss in place, that’s where you can fall into this trap. For example, let’s say you buy a stock at $10 and it falls to $9.5 where you might have had a psychological stop in mind but that wasn’t live.  Since you didn’t have it as a live stop order in place (or you did but decided to cancel it) it becomes easy to justify an excuse why you can give it a bit more room, the stock falls more, you give it just a bit more room, this continues and repeats and soon you are down 10%, 20%, 30%, 40% and at a huge loss. Especially for swing trading it’s best to place your stop order immediately after you enter a trade and then adhere to that order if it looks like it’s going to be filled, let yourself stop out. Remember, stocks are not spouses, you are not married to them, if stopped out you can simply buy them back again after the chart sets up again to a good risk/reward setup (I guess you can remarry your former wife LOL but you get the point). Steve and I stop out of positions all the time, simply to buy them back again soon after if we get anther trigger.

You might tell me that you’ve heard some traders say that they don’t use stop losses. Yes, I know quite a few exceptional day traders who don’t place stops.  However, first and foremost they are extremely disciplined, and secondly for their style of fast trading it might be more less advantageous to use stop orders and instead manually exit the trade on their own.  For swing trading especially, the best practice is to immediately set your live stop order immediately after you enter the trade, DON'T Wait!Remember my rule, always know your exit price before you even buy the stock!

Look at 1000’s of charts, practice practice; price action, indicators, charts, and tools of the trade: