The One Question that Needs to be Asked Before You Enter a Trade

sholmes2Sherlock Holmes was a great fictional detective. His mind always pondered the motives behind the crime, and he would have methodically considered the elementary questions of Who, When, Where, What and Why as he worked at solving each crime. So let’s do that for trading, and find out which of these five age old questions is the most important question a trader needs to ask before entering a trade.

WHO can place a trade? Just about anyone can place a trade as long as there is a trading account with sufficient funds in it. Even my cat once placed a trade for me by walking over my keyboard and activating a market order by stepping on the Enter button. So really, it is you, your broker or your cat who can place a trade.

WHEN can a trader place a trade? It’s so easy to place a trade today. In fact, it’s quicker and easier to place a trade today than it is to boil an egg. One keystroke, a click of the mouse, a screen touch on your smart phone and voila! you have done it. You placed a trade. When markets are open for business, you can place a trade.

WHERE can you place a trade ? As long as there is internet connectivity or a telephone line you can be anywhere. On your yacht, in a shopping mall, on the train etc. The guy in front of you in the line at Starbucks ordering a skinny latte’ while shouting down the phone to his stock broker is probably for real.(A jerk, but for real). When smartphones eventually become fully waterproof, these guys will place trades in the shower too. Therefore, where you can place a trade, is not a problem.

WHAT can you trade ? On the NYSE you can trade shares in over 2 000 companies. You may also trade stock market indices, commodities such as Oil and Gold, futures like Coffee and Soybeans, Forex, Bonds, Gilts, ETF’s and a host of other complex financial instruments.There is a wide variety of choice in what the trader may trade.

Which Leads to – The One Question That Needs To Be Asked Before You Place a Trade.

WHY? Have you ever been cold called over the phone by a boiler room salesman? He will try to convince you to invest in this next, best, greatest, upcoming company called sumscam.com (whom you have never heard ofand how he needs you to do it now before the stock skyrockets. He wants you (who) to buy sumscam.com (what), right now (when) just as you are about to enter the gym (where).

The dodgy salesman will use all the high pressure sales tactics in the world to tell you why you have to buy the stock, why this company is about to make early investors rich, and why you can’t afford to be a fool and miss out. Well, as you are no fool, you ignore his pleadings, end the call enjoy your gym.

So, as traders the most important question is WHY do I need to take this trade. Think it through. Save yourself a lot of pain and unnecessary losses by stepping back and pondering WHY you need to take this next trade. If asking one simple question beforehand saves you from a loss, it would all be worth it.

The next time before you take your next forex trade or buy your next stock or short your next bond, consider this first:

Why Do I Need to Enter this Trade?

Which always beats that fist pounding, head banging, heart sinking feeling that comes from entering trades where the trader never considered the WHY first – and it usually sounds something like this : ”Why oh why did I enter that trade?”

CONCLUSION

Before you enter your next trade, consider this : It is better to CONSIDER why you might take the next trade, than to REGRET why you did take that next trade without first asking – Why?

catrade

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