Tuesday, October 30, 2012
Not Purchasing All At Once
Sometimes your research allows you to take on a position that contains many units (shares or options contracts). One thing that needs to be kept in mind is not going in 100% all at once. You should schedule your buys throughout the trade. Major risk abounds by going all in. Capital protection and trade verification need to be achieved.
When purchasing many options contracts or many shares of a stock or etf, an investor or trader feels confident that the expected move will happen. But if that trade is wrong, the losses can increase quickly. One protection against that action is to plan a purchase program in stages. Determining how much to buy when is up to the investor. But going all in right away risks capital that should not be risked. Sometimes sacrificing a little bit of profit in order to protect capital is essential and should be used when possible.
Investors and traders tend to have their egos show up while trading. Let's face the fact that making money is the purpose and feels good. But sometimes we are wrong. The trade sometimes goes exactly the other way the moment we enter. A key to winning trading is to wait for the verification before the bulk purchase. Allowing for verification before the bulk purchase has saved many a traders' capital. This strategy also allows for more trades to be executed because of the fact that losses taken when we are wrong are much smaller than if we go all in.
So remember to use a proper purchase plan when making a decision to purchase lots of stock or many options contracts. Hopefully it will not only save your capital, but extend your profitable trading career.