When to Stop Trading
You just scored on your first trade of the day. Congratulations! The tendency is to get back in right away and do it again. And again, and again. Until, when you arrive at the last trade of the day coming up to the closing bell, you’re underwater with a decision to make: do you hold overnight into a gamble trade to see where it will open tomorrow, or sell for a loss and give back all the gains you accumulated during the day?
If you hold overnight, it could gap in your favor, which would be awesome. If it goes against you, you lose. Even if the stock gaps in your direction, you still lose by thinking you did something right when, in fact, you just got lucky. That would tempt you to continue with that speculative strategy, until you lose. That’s not a good approach, not to mention the sleepless nights worried about your position.
That is how I used to trade. I kept trading until the end of the day. After all, if the market is open, why shouldn’t I make money, right?
If only it works out that way! Then, one day after I sold for a loss, I did the math. That last trade of the day, closing at 4 p.m., netted me $1.46 for the entire day’s trades. All the great executions during the day, but with that last big loss, all I got was a cup of coffee. A small one at that. That is no way to build wealth.
I met my Waterloo.
That is when I decided to stop initiating new trades after noon. I figured if I can’t make my money in the morning hours, I will certainly not do it in the afternoon. You and I both know how quickly that closing bell comes up when you are watching a losing position. No more new trades after lunch.
Since that one change in my trading, two amazing things happened:
- I ended up with more money.
- I ended up with the afternoon to myself to do other things. I was now free to hang out with family, take a walk with my dog, embark on my hobbies or take a nap. I regained my time, worry-free. I won all around.
While on that subject, the best time to stop trading is when you hit your profit target. It is too easy to continue trading when you are on a roll, I get that. But say your target profit is $300 for the day, based on your trading plan (you do have one, right?). When you reach that target, simply stop. You hit your daily goal. There’s no more for you today. Leave some for others. Come back tomorrow.
Just as putting a little salt on your dish enhances the flavor but too much salt ruins it, overtrading is also not healthy. Follow your trading plan and simply stop for the day; you reached your goal.
This will keep you on track and reduce the inclination to keep trading past your prime. I believe we have all done it… made a lot of money and then gave it back by overextending our welcome on the stock market.
I call this my two-pillar foundation to trading success:
1) Making money, which many can do.
2) Keeping it, which most cannot.
By managing your trading frequency, you can save your earnings to systematically grow your account.
These are some of the things we discuss in our daily Trading Room. Those who have been with us for some time know these all-important concepts, which, by the way, I have not seen taught anywhere else. Ahren Stephens and I host these live events daily, where we talk about money management, market conditions, how news will affect pricing, our strategies, fundamental and technical analysis, mental aspects of trading and even your longer-term trading career goals. The all-encompassing Trading Room is held every morning 9:20 to 10:30 a.m., ET. Click here to subscribe. If you already know what calls and puts are, this is where you belong.
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