Trade Management for Online Stock Trading

Money management is vital to successful online stock trading. It's a good idea to incorporate a trade management strategy to your stock trading system. As it is with any other business, it's important to protect your bottom line. A money management system will help you do that. There are a few key things in a trade management system.

The first and possibly most important are stop losses. These protect you from losing more money in a trade than is necessary. Too many times emotions begin to take over a trade and you lose your ability to accept that you are on the wrong side of a trade. Rather than closing the position and moving one people stay hyper focused on that one trade trying to get it back to a winning trade. Not only do you lose on the trade itself. You also lose out on profits on another trade do to your lack of focus. Write down rules for a stop strategy, where you will place them for each type of setup. Your stop should be placed far enough away from your entry to give the stock some breathing room, but not so far that you blow through the day's profits in one trade. Make a habit of putting your stop in at the same time you open your position. Better yet, have the stop automatically sent when your position is filled. Many online stock trading platforms have this feature. Just remember, it's ok to be wrong sometimes. It happens to everyone. One of, if not the greatest trader that ever lived was Jesse Livermore. He said "The stock market is never wrong, traders are wrong". Keep this in mind while trading and it will help you cut your losses short.

In order to achieve success in online stock trading you need to be able to cut your losses short and let your winners run. Believe it or not but entering the trade is the easy part. Managing the exit of the trade is what separates the successful traders from everyone else. you don't want to be exiting too early or too late.

When managing a trade I would recommend scaling out of your position. You can divide it up into thirds or fourths. Personally I break it up into fourths. I exit 1/2 of my position at my first target, then 1/4 at the second. I let my last 1/4 run with a stop trailed beyond the closest support or resistance. This has helped me tremendously as I found myself watching the money, not the trade, and exiting out too soon. My rule that I incorporated in my stock trading system was that I cannot close my remaining 1/4 of my position. I make the market take me out. This has allowed me to catch more runners and make much larger profits.

Simple rules like these will help you go along way in your trading career. Online stock trading is much more than just finding a setup and entering. After that is when the real finesse begins. If you have a trade management system then you will be focused and in return cut out a lot of the emotions that cause traders to fail.

TradeStocksAmerica Staff

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