Here at the Bullish Bears, we are always wanting to share a few words of stock trading wisdom. Wisdom that comes with trading and wealth building as I have grown my portfolio. I am by no means a licensed financial advisor but I am happy to share what I have learned so far and what I continue to learn every day. I’ll first start with a statement that my friend Gary shared on Facebook the other day. When you mash that TRADE button, you’re no longer a stock analyst. You become a risk manager”. I don’t know about you but this speaks volumes to me. Well, I suppose I could write a series of books about those volumes but I’ll keep it short here.
Table of Contents
Stock Trading Wisdom and the Trading Position
When you enter a trade you’re executing a plan that has defined risks according to your trade plan. You must monitor your position at the ready to protect your capital. You have risk tolerance built into your trade plan but you must stick to that plan.
Ever hear the phrase “never go grocery shopping while you’re hungry”? The same applies to your trading. Never be worried about money while you’re trading your plan. Not that you’ll likely want to buy more while you’re in your position but that you’ll likely allow emotion to influence your ability to stick to your trade plan.
Your trade plan is based on your chart analysis and you have a set of parameters and rules that you’ll use to manage your trade. And thus manage your risk. This stock trading wisdom is called trading risk management.
Fear of Missing Out
If you get greedy or worry about money while you’re in the trade your focus will be greatly skewed. And you will likely not be able to manage risk let alone trade your plan. This is also referred to as FOMO (fear of missing out) but it’s more than that. FOMO trading is not stock trading wisdom.
Although fear is the ultimate destroyer of portfolios, poor risk management is the evil sidekick that will lead you to a losing fight. You must focus on trading the chart and following your trade plan. That’s the just of it. From beginning to end your trade plan is key to being a successful risk manager.
You are brilliant. Your logic has brought you here. You know how to trade profitably. This is what brings me to the next point.
Stock Market Wisdom and Knowledge
A wise man once said, “your knowledge must grow exactly as your portfolio grows”. “You cannot manage a million dollars worth of portfolio with a thousand dollars worth of knowledge”. This is deep!
While you grow your portfolio you gain more leverage and more opportunities to utilize your leverage. You must learn how to utilize these new opportunities. And you must learn how to manage risk with these new avenues of income.
Your entire wealth of trading strategies must change and adapt in order to manage a larger fund in order to keep it. What worked with a thousand dollar trading account may not work well with a million dollar account; or even a ten thousand dollar account.
Though there are many trading strategies that scale well with growing small accounts you must examine whether or not you can manage the same trade with a much larger amount of capital. With knowledge comes stock trading wisdom.
I once thought that the wheel options strategy, which works really well with a stock trading at $30, would work fine for trading AMZN. The truth is that the wheel trade strategy would require a minimum of $600,000 of risk outlay for months at a time with AMZN. Surely there are other ways to trade Amazon that are much more risk averse.
Not that AMZN is likely to file chapter 11 overnight. But keeping scale in mind you must know that a 3% move in a $30 stock is nothing like a 3% move in a $3,000 stock. Clearly your trading knowledge must adapt to trading with a large account. You have the skills, you just need to learn a few new strategies and risk management parameters.
There’s stock trading wisdom from all kinds of sources out there. Make sure you’re getting good knowledge with that wisdom. That’s why I say stick with The Bullish Bears. We’ll help you grow, develop and master risk management. Ask questions often. We pride ourselves on being here to help. We’re also here to grow and learn as we help. Letting us help you helps us grow as a community should. (This post was written by moderator Bullish Bears Jeremy).