Wednesday, September 12, 2012

Hot Stock Tip: Don't Take Tips

Well meaning friends and advisories often send out specific picks as to what to trade and when.

Unfortunately, there are inherent dangers in such programs, despite everyone's best efforts. First, even with Twitter, your mentor makes the trade, sends you the details and you must receive it. Then you act on it. Most often, you miss the move simply because of the time delay in this process. Imagine getting the message to buy long. By the time you get it, the trend reverses. In good faith, you buy long and quickly realize you're now in a 'hope and hold' situation. The move is over.

Frankly, as a trader, the last thing I'm thinking about when I'm looking to enter a position, is to send out a message. My focus is where it should be: on the trade itself. Be wary of traders who are not focusing on the trade at hand. Their concentration should not be on advising folks on trades in the moment; it needs to be on the trade at hand.

Secondly, and I stress this endlessly, you yourself should become the expert. It is you, who should learn how to read the technical indicators, make the assessments and determine the entry and exit points. As traders, you are not merely mechanics clicking the keys on others' whims. Be able to read the raw data and form your own determinations. It is actually not that difficult once you learn how. Imagine knowing this information and acting on it at will. Your money tree will always be in bloom.

Candlesticks are raw data. So are moving averages, stochastics and all the other input items that entail a trade. By relying on others - regardless of who they are - you are putting your faith and confidence in someone else's interpretation of what the markets are doing. Is this not the very reason you got into trading your own accounts? Did your financial guru not squander away your money already?

Recognize that traders who act on tips are likely an insecure breed with too much money, destined to lose it. Even if the tipster is correct, by the time you get the tip, it's history. In this day of the internet, everyone has essentially the same knowledge available. Learn to use it effectively and place the odds in your favor.

Tips are for waiters and cabbies, not to be played in the stock market.

A note about Hugh:

Trader Hugh is a successful, full time options trader and trainer on the NYSE. Learn but one strategy well and you could make an excellent living. As part of the training, Hugh provides 'one on one' sessions and Live Trading, where you watch and learn everything Hugh and his cohorts trade, every Tuesday and Thursday morning.

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