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Stock Trading System


Benefits of a Stock Trading System


A stock trader who wants to be successful for the long term will first need to come up with a viable stock trading system that is grounded on analysis rather than on emotion. More importantly, a viable stock trading system will help a trader to avoid common trading pitfalls and stop them from making random stock trades in response to current market conditions.


Stock Trading SystemTypically, a stock trading system will be based upon technical analysis where a trader examines a stock’s historical prices and assumes that any small fluctuation that has occurred in the recent past will likely continue into the near future. This analysis will include the use of common technical charts such as bar charts, candlestick charts and point and figure charts that will exhibit particular technical indicators such as support and resistance, momentum, strength and volatility. These indicators will then be built into a stock trading system to help a trader decide when to buy or sell stocks.


Stock Trading System to Avoid Mistakes


Moreover, a good stock trading system will provide a road-map that will prevent a trader from making some of the following common stock trading mistakes:

Avoids over or under-trading. A good stock trading system will prevent both overtrading where a trader enters and exits a trade every few seconds as well as under-trading where a trader holds on to a position all day or even longer for much longer periods of time. Instead, it will help a trader strike a happy medium.


ŸAvoids picking tops or bottoms. A good stock trading system will prevent a trader from picking tops or bottom and instead focus on trading with the trend. Likewise, it will help a trader to avoid adding to a loosing trading position in the hope that the market will suddenly turn around and move in their favor.


ŸEncourages emotional control. A good stock trading system will discourage a trader from being greedy by trying to squeeze every last profit out of an already profitable trade. At the same time, it will help a trader to know and admit when they are wrong about a trade and to quickly get out before loosing a significant amount of money.


ŸIncorporates proper risk management and sets limits. A good stock trading system should be built around protecting one’s capital rather than just earning trading profits. In other words, it will incorporate the use of stop loss orders, set reasonable trading limits that take into account a trader’s capital and will tell a trader when to stop trading when market or trading conditions become adverse.


Be Flexible with your Stock Trading System


However, it’s also important to remember that not all stock trading systems work for the long-term. In other words, if a stock trading system is no longer profitable, the trader will need to be able to develop a new system. You can learn more about an effective stock trading system at Trading System Pros.

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