DRAWING UP SCENARIOS

The thing I found to work best for me is to draw up every possible scenario
that could happen. Do this both before you get in and then once you are
in the trade to really help you. Most novice traders only dream about the
big profits they are going to make and forget to consider that the market
may go against them. They then have no strategy for what to do if it does,
becoming like deer in headlights. But if you had predetermined that you’d get out at some set point, you begin to make trading so much easier and
more profitable.

I’m a firm believer in letting your profits ride. If you are an investor you
can hold on for years, but as a trader you need to be realistic about when
to get out. If you are day-trading a stock with an average trading range
of $1.20 a day and it’s up $1.10 on the day, and there is no special news
to make it move more, it may be a good idea to get out or even short if
that is your style. You can accomplish this by drawing up scenarios and
knowing that if the stock moves over $1.00 you will look to time an exit.
Though I like to draw up my scenarios during off market hours, I do review
the market throughout the day to see if I have to make any adjustments to
my plan.