I love it. After having done it in my own portfolio for 30 years, I can tell you that I still get a thrill every month when I look at my statements and see how much income is coming in.
But I recognize that dividend income doesn’t get the adrenaline going or release dopamine in the brain for some people.
And you know what? I love the excitement and profits of trading too. Turning a quick profit is an incredible feeling. There’s nothing like turning $500 into a quick $1,000 – or when your profit represents something tangible, like a mortgage or rent payment.
As fun as a winning trade can be, a losing trade can be not only deflating but also devastating if the loss is too large. So when speculating, you want to make sure you’re doing it the right way.
Here are three things you can do to make sure you don’t let all of your hard work from investing and trading go down the tubes because of a momentary lapse in judgment…
- Use stops. When you’re speculating, it’s easy to let your emotions control your decision making. That’s the worst thing you can do.
Setting stops provides you with an exit strategy when you enter the trade. It ensures your emotions don’t take over and wreck your portfolio because you couldn’t pull the trigger and sell a loser early.
Stops will also allow you to hang on to profits when the trade turns around so you don’t let a winner become a loser.
- Know why you entered the trade. Traders have all kinds of strategies for entering a trade. It could be based on fundamentals, technicals or something they observe at the mall… Whatever it is, if things change, it’s time to exit.
If you entered a trade because a technical indicator suggested the stock was going higher and instead it falls, you need to get out. No hanging around thinking, “Well, earnings are coming out and I like the company…”
That’s not why you entered the trade. If your initial reasons aren’t working, exit the position.
- Don’t allocate too much capital to any one position. If you’re losing sleep over a position or are stressed out about it, you put too much money into the trade.
Wealthy Retirement‘s publisher, The Oxford Club, recommends that you put no more than 4% of your capital into any one trade.
That way, if you get stopped out with a 25% loss (our recommended initial trailing stop), you’ve lost only 1% of your capital, which is not difficult to make back.
Whether you’re trading small cap stocks, options or cryptocurrencies, trading can be lucrative and fun. The good news is that it’s fairly simple to take the proper steps to protect your portfolio and your stress level.