2013: A Look Back And Ahead"Those who cannot remember the past are condemned to repeat it." — George Santayana, philosopher and writerNobody likes to look at their bad trades. They bring back memories of bad moves that cost money. But your progress as an investor will be stymied if you don't look at your past trades on a regular basis — especially those that went wrong.
Crucial to your development as an investor is recognizing mistakes that keep cropping up.
Are you chasing your stocks too much? In other words, are you buying them well after they have already risen 5% or more from the proper entry point? Do this often and you'll likely take losses in an otherwise good stock. Such frustration may prevent you from buying future big winners too.
Maybe you're cutting losses too slowly — or too quickly. Remember: Some stocks will sink a few percentage points below the proper buy point, and that's OK.
Maybe you're buying the wrong stocks to begin with. Or are you buying into the heavily hyped names, without first counting all the bases it had already built
These are just some of the most-common mistakes that appear among investors new to IBD. It's time to look at your 2012 trades. Be brutal. If the process doesn't hurt, you aren't doing it right.
• Step 1: Put up a nice big daily chart of the S&P 500 or the Nasdaq composite. Mark each of your trading actions on the chart. This is a great way to see if you are buying stocks in a healthy market uptrend, a choppy one or a decline.
If you bought 1,000 shares of Spirit Airlines (SAVE) on March 30, go to that date on the wall chart and, near the March 30 bar, write "+1,000 shrs SAVE @ 19.98." Where did you sell those shares? Mark that date as well (-1000 shrs SAVE @ 20.60").
It would help if you mark the sales in red if they close out a losing trade. Be as neat as you can, especially if you're an active trader. This chart will get very cluttered with your notes.
• Step 2: Maintain a separate file of daily and weekly charts of the stocks you've bought, clearly marking when and where you bought them — and when and where you sold them. Yes, this is a lot of work.
• Step 3: Maintain a daily trading diary. You needn't include thoughts about who's dreamy. Let's keep it to buys and sells. Why did you buy the stock? Why did you sell it? What was happening in the broad market that day
Then look back and see what your gain or loss was — and what the stock did after you exited. The act of writing up a summary of each trade will almost surely reveal some trends in your behavior. A recurring theme may appear, and almost surely it will be a flaw, not a strength.
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- George Santayana