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Secret 4

Have a plan before you trade, and then work it

If you have a plan and follow it, you are able to avoid the emotionalism that can be the major enemy of any trader. You must try to stay calm during the heat of the session and remain focused. To do this, you have to be totally organized prior to the opening bell. Your daily mission, should you decide to accept it, is to make money each day or barring that, at least not to lose much. In normal markets, you should take normal profits. In those unusual markets (that occur rarely), you need to shoot for abnormal profits. This is one of the keys to success. The next is that you must always limit losses on trades that are not going according to plan! This takes willpower and is as essential a quality as having plenty of money. In fact, it's more important than having lots of money. Money is not to hold on with; that's for the sheep, and you don't want to be sheared. If big risks are required, don't take that trade. Wait for an opportunity where you can place a tighter stop. Livermore's method of trading was to look for opportunities where he could enter close to his risk point. In that way, his risk per trade was small in relation to the profit potential.

If you do not have the willpower to take the loss when your risk point is hit during the trading session, then you must use stop loss orders. Simply place your stop at the same time you place the trade. You probably have heard stories about the floor traders “running the stops,” but I assure you that in the good trades, the majority of the time you will not be stopped out. This happens only with the bad ones.


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