Follow this trading rule. Don’t be a dummy!
When following a Trading Rule looking at the markets, some people pay attention, some people don’t, so I’m just gonna reinforce this right now.
You’ve got to follow the trading rule whether you’re a swing trader or not, and you like to buy stocks you, if like to buy companies on the dip meaning when they go down a lot, maybe the stock goes down a lot because of a bad earnings report or because of bad news or a scandal or whatever.
Okay, maybe Apple just didn’t sell as many devices as they usually sell, something like that. But you believe it’s gonna recover, you believe it’s a great company, you believe it’s gonna go back up.
I know it’s tempting to just jump in there right after the stock price goes down a lot. But with this trading rule I’m going to encourage you to wait three trading days at least.
I’m not saying you buy immediately after three trading days have passed after a big dip in the price. I’m saying you just look at it okay?
And if the price action is starting to go sideways or better yet, it’s starting to curl up, then that’s even better. That’s a time that I might get in it, depends on the news, it depends on why it went down.
There are a lot of things to look at!
So let’s look at some examples right now, of what happens if you don’t follow that rule:
Twitter stock let’s take a look at Twitter stock, let’s see what happened if you didn’t follow that trading rule.
Well, it had a big drop there right and maybe you were tempted to get in maybe you’re tempted to get in on Friday well now it is Monday and it’s down another six over six percent.
People who did not follow then wait at least three trading days rule, and then look at it again they bought and now they’re down quite a bit.
What happens a lot of the time and this I know this is not a candlestick chart, this is a line chart, but still imagine a very big red candle. Often happens that after a very big red candle, then the next trading day oftentimes you’ll get another red candle, although it won’t be as big. And then the next day you might get another red candle, but it’s even smaller.
Okay so the red candles get smaller than the first really big one but they’re still red. It’s still going down, it oftentimes tends to drift downwards for at least three trading days. That’s Twitter, that’s one example.
Here’s another trading rule applied to Facebook:
Had a big drop alright there on Thursday, big drop, and then if you hadn’t waited at least three trading days, now it’s Monday and you’d be down an additional four percent or approximately four percent.
You should have waited, should have applied the three day rule here’s.
let’s take a look at this trading rule applied to PayPal:
It’s not as drastic looking but still a pretty sizable drop there all throughout Friday.
So that’s the best pretty sizable drop there, and if you just jump right in today’s the next trading day Monday and you would have lost an additional three percent or approximately three percent and this is PayPal.
let’s take a look at CBS:
This is CBS stock all right, big drop on Friday, big drop and if you had just jumped right in, guess what you’d be down today monday?
Over four percent!
So, I recommend waiting at least three trading days, watch for those red candles to get smaller and smaller every day.
Hopefully and better yet, maybe you’ll get some sideways action and even better the mat is if it starts to curl upwards and that gives you an indication that perhaps the market is starting to forgive the company and forgive the stock and maybe they’ll go beat up on some other company and some other stock and they’ll be done beating up on the one that you’re looking at.
And that might be the time to get in, it depends on why it went down, you got to look at the news, you got to look at the chart, you have to look at a number of things.
Okay and these are things that I help people with.
Some basic Trading rule to succeed:
I am going to suggest to you some basic trading rules, but they must be mastered and adapted to your on trading style and personality.
It is clear that some of them have no arguments, but traders admit all the nuances we want:
- Follow a trading system.
All traders, fundamentals or technical, follow a trading system. This trading system will tell us when to enter the market and when to exit the market, where to place stop losses, etc.
Fundamental traders, have the option to open or not to enter the market, but the technical ones, in the moment that a signal arises they take it, they can not allow themselves the luxury of speculating if it is good or bad.
- Management of losses and profit.
You can write them, and surely there are out there, books about how to handle your losses and your profit. It may seem a sovereign stupidity, but fear makes us close the winning operations too soon, and the losers too late.
As you handle these two usually wrong forecasting situations, and the rules you establish to control, they will make your Trading account grow appropriately.
A few days ago I wrote about capital management, later I will continue to include articles that help managing our Trading account. I am not exaggerating, if I tell you that all trading rule you establish to control your capital, will be the most profitable.
- To Learn.
I can tell you about lots of Trading books, lots of websites, thousands of articles, etc. so you can learn, but you really have to learn from your own performance. All professional traders keep a Trading diary, in which they keep their positions, their entries and exits, position size, charts, etc. Everything that helps you take steps to correct your defects, and improve attitudes that make you win.
- To know when to stop.
There are times when we must stop trading. If we take several consecutive losses, it is a clear sign that something is not right. We must establish trading rules that tell us which is the time to stop, and check where we are failing, and until that time come when we recognize our mistake, do not start trading again.
- Do not skip any trading rule.
This is the rule of rules, the papa rule. When we skip rules, Trading becomes a game, a chance, a lottery, and it for sure cheaper and more fun, going to a bingo or to a casino.
From here on you have to applied these rules, make them your own rules, decide which Trading Rules are the ones that you will incorporate into your arsenal of tools, and how you will implement them.
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My name is Jesus Guzman, if you’d like some help with trading chart, reading, investing, putting together a plan for your trading and or investing, you can email me anytime, my email address is in the contact form below.
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It’s important you got to follow that three day trading rule, you don’t have to but I do and it has helped me to avoid disasters and it can help you too thank you so much I appreciate it and I’ll write to you again soon.