Want Positive Results….Think Negative!

You’ve heard of the power of positive thinking. The glass is half full. I’m all about optimism when it comes to life. When it comes to trading, however, you must think negative. Expect the worst!

Let me explain. When you see a possible trade setting up, you need to monitor your thoughts. Are you thinking about how much you are going to make on this trade? You shouldn’t be. Your only thought should be how much can I lose if my stop gets hit. Is the stop .20 cents away. If so, how many shares should I buy so that if my stop gets hit my loss will still be within my personal tolerance (which should never be more than 1% of your trading capital).

Many traders only think about how much they can make and therefore give no thought to position size. That can lead to a very dangerous situation. Let’s take a ficticious trader named ‘Serena’ for example. If she is only focused on the upside of a trade, she might buy 5k shares because she is expecting at least a .30 cent move in her favor and $1500 profit sounds great to her. Sound familiar? It’s easy for her to buy that many shares if she only expects a ‘win’.