How and when to hold good trades longer, is the most popular question by far. Trading conviction and winning trades go hand-in-hand.
The big problem for a new trader is losses. New traders don’t have the track record yet to offset losses that are a part of probabilities. Not to downplay the financial aspect of trading losses, but it’s more of a mental thing.
Once you understand basic trading rules and strategies, you “know” you will have losses but you don’t want to take them because you haven’t proven you can earn money.
Think about this from a business perspective. It would be mentally tough to sign a lease, and buy inventory, if you weren’t sure you could make money. This mental roadblock is facing every newbie. I teach trading losses are a business expense and to be expected. You simply need to keep them under control.
For a trader to reach this mindset that trading losses are a business expense, you need to master the art of conviction levels. This means you need to determine; “Do you like the trade or do you love the trade?”
A common mistake is believing all trades have the same “story.” They don’t, each trade is unique. Circumstances are unique.
- Some trades have the market, the sector and the stock in sync.
- Some trades have only the stock in a clear trend. The expectation for follow-through is different.
- Some trades have momentum from a strong close from yesterday.
- Some trades have the last three months in a clear trend in the direction of a breakout or bull flag.
To improve your conviction level and to know when to hold good trades longer, you need to know the history. You need to develop a solid argument for the idea. If you can, you can build and or hold, assuming there is room to go.
One of the best trading strategies to determine conviction level is to determine the amount of price history behind the idea. Think; “How much money was committed prior to me making this decision?”
The more money committed to the idea, the higher your conviction level. If you are trading a half hour rally that is still an inside day, conviction is lower until that scenario changes.
Work hard to notice the amount of money in front of your idea and you will know how to manage the trade.
Some other trading lessons that may help…
Leave your comments if you have any questions.
All the best,