Success Trading: Yet More Basic Terminology for New TradersWritten by Chuck Cox
In this day and age of online brokers for virtually every market out there, there are some very useful tools that will help protect your account and lock in profits when you have them. It is our recommendation that you use a good online broker and take advantage of not only low commissions they offer, but also automated tools that are available. These tools are virtually idiot proof if you use them. The number one reason that people’s accounts go belly up in markets is because they lack discipline to stick with their trading plans and let emotions drive their trading decisions. This approach is a guaranteed way to lose in markets. Oh, you might get lucky on occasion, but eventually market will take your money. Let discuss some of trading tools we’re talking about.
Stop Loss – Also called a “stop”, this is price at which your position will be automatically closed. If you buy IBM at $50 per share, and then enter $45 as your stop level, then your position will be sold when price hits $45. So this enables you to protect your account from a large loss. Bear in mind, however, that this stop level only “triggers” closing of position and doesn’t guarantee you’ll get out at that price. A quick price drop might mean your order was executed at $42 instead of $45 because of market volatility – but this would be an extreme case. Also, if you carry position overnight and IBM opened at $40, then that’s price it would be sold. Keep in mind that if you had “shorted” IBM at $50, then your stop would be placed above $50 to protect your account. When stop is triggered on a short position, you would be buying to cover position.
Success Trading: Some Basic Terminology for New TradersWritten by Chuck Cox
The world of trading can get very complex because financial markets are complex. There thousands and thousands of successful traders out there today. The amazing thing is that they all have carved their own niches and approach markets in a unique way. This should be wonderful news for beginning traders because it demonstrates that there are thousands and thousands of different ways to proper in markets. It’s just a matter of discipline and finding approach that suits your style and personality. With all that being said, new traders must begin somewhere, so let examine some basic terms and approaches to markets.
Going Long – This means that you’re betting on instrument (stock, future, option, etc) to go up and that you want to buy. You purchase financial instrument, watch it rise and then sell it for a profit. Profit are realized when you buy low and sell high. It’s also known as taking a long position.
Going Short – This means that you’re betting on instrument to go down and that you want to sell