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How To Put The Odds In Your Favour When Share Trading

Posted by strudy on Aug 19th, 2009

The first thing you must learn as a trader is that you have to realise that there is no such thing as a sure thing when you are trading in the stock market.

Secondly you must also accept the fact that the stock market can do anything at anytime.

Thirdly share trading is not about trying to predict the future because it just cannot be done.

If you can accept these three facts then it will be much easier to take losses when they occur without demolishing your self-esteem. So when you make a trade you will be able to accept that you don’t know what is going tohappen next.Therefore you will have no expectations that this trade will be a profitable one or not.

So how can you make money if you don’t know what the outcome will be? The answer to that is that you treat share trading as a probability game.

Therefore for very trade you enter, you need to know that the odds are in your favor to make profits before you start..

So how can you put the odds in your favour?

The first step is that you have to develop a trading edge.

This is achieved by using technical analysis and fundamental analysis. You also have to have a number of variables that must be present before you enter a trade and you must make sure that you always use the same set of variables. Your edge is your strategy you have set up to enter and exit trades. This should be well defined in your trading plan. Consistency is the key here.

There is another set of probabilities that I use occasionally. They are quite simple and easy to follow.

1. If a stock is trending sideways then I use the probability that there is a 25% chance of it going up and a 25% chance of it going down. Or a 50% chance of continuing sideways.

2. If a stock is going upwards. I use the probability of 70% continuing upwards and a 20% probability of it going sideways, and a 10% probability of it going downwards.

3. If a stock is going downwards I use the probability of 70% continuing downwards and a 20% probability of it going sideways,and a 10% probability of it going upwards.

Depending on your attitude to risk, the percentage levels above can be varied to suit yourself. These percentages above are shown here as a basic guideline only.

In conclusion, If you have a good trading plan set up with strategies in place to enter and exit your potential trades, plus you have your stop losses in place then you have already put the odds in your favour. Against a trader who goes in blindly with no preset plan at all. They are basically playing “Russian Roulette” with all chambers loaded.

And remember, you will never know if your strategy works properly if you don’t follow it.

Chris Strudwick is a successful share trader on the Australian Stock Market Visit his weblogs at both http://www.asxnewbie.com AND http://www.aussie-retiree.com/ for more free articles and useful information about the stock market.

One Comment to “How To Put The Odds In Your Favour When Share Trading”

on 19 Aug 2009 at 11:15 pm1Math World | How To Put The Odds In Your Favour When Share Trading …

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