Business & Finance Finance

Night Trading? Don't Trade Beyond Your Comfort Zone

Paper trade your trading strategy.  Do not trade with real money before you have fully tested your plan and contingencies. Brokerages offer E-Mini market simulators that you can use to develop your trading system. Invest the time to gain confidence trading before you trade for real.  You should paper trade regardless if you are trading emini futures, stocks, ETFs, currency trading, night trading, etc.

Once you begin trading live, build up to larger trades.  Begin with a handful of shares, perhaps a 100 lot. When you are accustomed to trading with that amount of money and you are making consistent profits, increase the number of shares.

Too often novice traders want to make a quick killing, trading 500 or 1000 shares without having first made consistent profits with 100 or 200.  Professional traders know better. Only risk a small portion of your capital on any one trade.  If you can only afford to open an account with 200 shares, do not risk it all on any one trade.  Look to minimize your losses. If the trade is not going as you planned, exit the trade rapidly for a small loss.

If you are under-capitalized, you may end up trading with "scared money".  Scared money generally leads to poor trading habits, more mistakes, and an almost self-fulfilling prophecy that you really cannot make good trades. Failure to enter trades timely per your trading strategy for fear of losing capital may ultimately cause you to make even more mistakes.  "I can – I can't, I can - I can't" trading can only prove disastrous for you in the long run.

Don't let others convince you to trade beyond your means.  Your broker calls you up and tells you about a hot tip.  "You gotta get in on this trade".  He convinces you to buy shares on margin (where you borrow the money from the brokerage).  You know you cannot afford to lose the money because you could not pay the margin back.  Why are you out on margin?  Why trade beyond your comfort zone?  Wouldn't you be better off buying shares you can afford to lose?

I knew a man who traded "Black Wheat" (used for delicate pastas such as Japanese Udon). He was on a "hot tip".  He mortgaged his home and was out on margin almost twice as many shares as he was on real cash.  That year there was a shortage of Black Wheat and the U.S. Department of Agriculture had never allowed Black Wheat to be imported. This gentleman was about to make a killing.  The operative words here are "had never" and "was".  That year the Department of Agriculture made an exception and allowed Black Wheat to be imported since it was at such a shortage.  This gentleman was wiped out.  The bank foreclosed because he could not afford to repay the margin.

Wait until you have the financial wherewithal to trade live.  From paper-trading you develop the skills to quickly recognize proper strategy setups and the confidence to enter and exit trades in a timely fashion.  You alone will know when you are ready to trade live. Once you decide to trade live, start slowly and build up.  You will be amazed how quickly you can increase the size of your portfolio, even if you trade conservatively.

The secret to improving the size of your portfolio is not always more shares or more trades. It is being consistent.  If you consistently have winning trading days, your portfolio will grow without having to take unnecessary chances, such as using margin you know you cannot afford to repay in case you lose the trade.

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