Saturday, May 7, 2011

Buying like Jesse Livermore

There is a lesson I need to learn, that I realized today. Most of the losses I got , which I later covered were due to going full money into trades that did not go in the direction I wanted. Like buying ENDP at 43 with more than 70-80 percent of money. This also happened with other stocks. This is a major mistake I am making.

As Jesse advises, buy in portions. Do not worry of the meager cost of each trade compared to the loss you get overall price of each trade is nothing. Buy in portions like if you want to buy 1000 stocks, buy 200, 200, 200 and 400. If they are on the rise buy accordingly.

If you are in full position in any stock you are in a danger situation. Your capital is at high risk.

In case of day trading, get into stock that are volatile in the range of 5-18 percent. Even if you get into it with high leverage get out of the trade with profits in the range of 3-4 percent and cover position for the day.

Use half the money in the account for long trend stocks. Use half for day trading. This the perfect mix. Then you do not have to keep selling your good stocks to do day trading. Cover your day trading by the end of the day unless it is an exceptional case. 

Understand the psychology of each stock trend. Understand what others are doing. You are not alone trading. There are other people sitting in front of computer like you trying to make money in the market. Understand herd psychology. What others are doing and go long or short according to that. 

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