The average person views the successful trader as someone who has a crystal ball and can predict market turns. They've got the perfect system. It's a secret formula that enables them to foresee when to buy and sell. If only one could have access to this forbidden knowledge, they too could make millions from the markets.
Successful traders do use predictions to create profitable trading systems, but not like you would imagine. Any trade can have a variety of potential outcomes, but the key is to have a plan for the unwanted outcomes. The profitable trader "predicts" that the worst case scenario will occur and then works backwards. It's all about having a plan around what can go wrong. For instance, if you knew a stock would fall 20% after you bought it, what type of loss would you be able to handle? If you made a prediction like this, you would look to determine a proper stop loss point in case your prediction was correct. What about earnings? If you knew the stock was likely to gap down 10%, how would that affect your portfolio? These are the types of things a pro focuses on. While the amateur loves to calculate their next fortune, the professional thinks about what can go wrong.
As you can tell, I spend a lot of time thinking about risk management and in my "Strategic Swing Trading Course," I expand on this concept and other risk management techniques in further detail. The key is to predict the worst, make a plan around it, and then let your positions make the decisions for you. If your worst case scenario does indeed happen, at least you are prepared for it. If it does not, then the winning positions takes care of themselves.
Risk right. Sit tight.
To learn more about swing trading strategies, stock market trading, and how to trade cryptocurrencies, visit my course page.
Disclaimer: This information is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. None of the information contained in this post constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. From time to time, the content creator or its affiliates may hold positions or other interests in securities mentioned in this blog or the associated Twitter and Instagram feeds. The stock or stocks presented are not to be considered a recommendation to buy any stock or stocks. This material does not take into account your particular investment objectives. Investors should consult their own financial or investment adviser before trading or acting upon any information provided. Past performance is not indicative of future results.