While having a temporary bias can be understandable, it can still have a negative affect on your bottom line. For instance, the multi-year decline in the DOW had turned many otherwise objective traders into hard core bears. Naturally those who were short stocks from early October 2007 were right on track, especially when we saw the market nosedive below 7,000!

Now if those same bears stayed short they have had their profits eaten into quite substantially, but even that is not the point. The big quesiton is what do we do when we see the market change direction, which it started to do in March and April of 2009? Do we remain bears and stay short waiting to reclaim our profits eroded by the current uptrend? Some would say yes.

One important thing that we have to remember is that the best indicator of market direction is the direction of the current trend. There is no real reason to stick with a stock trade that is moving continously against you in hopes that the market will eventually go in your direction.

The entire point here is that effective stock trading requires flexibility. Sometimes that flexibility invloves admiting that your original trading signal was wrong. After that you may have to trade in the opposite direction…and that’s OK. Our objective is to trade stocks profitably and not necessarily to feed our pride or our egos. If you maintain your objectivity and flexibility your opportunies for profit will continually multiply and you will trade more successfully than you ever imagined!

For tomorrow we have no trades.

For tomorrow we will buy AIG  – American International Group, Inc. (NYSE) on the open.

We had no trade today.

There is one simple thing that can make the difference between success and failure in your stock trading. It’s not some magical formula or some Holy Grail as many might have you believe.

It’s very simple basic rule that every successful trader must follow. That is the rule of risk control. If you do not control your risk you cannot possibly control of your reward.

Risk can be controlled in a number of ways. The first type of risk control is controlling the amount of your account equity that you risk per trade. For instance, if you risk $1000 on a trade and you have an account equity of $100,000 in your risk per trade is 1%. There will be losses in all trading and risking a small amount of your equity per trade can help you survive during strings of losses. In this example, you have effectively reduced your risk of ruin based on the unlikely probability of having 100 losses in a row.

If we take our $100,000 of equity and risk $50,000 per trade we are of course skating on very thin ice. If we experience just two consecutive losses our account equity will be wiped out and will not be able to profit from future trading opportunities. Our initial objective in using risk control is not to have exceptional profitability, but to survive in an ever changing market. Risk control allows us to go through the inevitable string of losses and weather the storm to survive.

Having good risk control measures in place forms the foundation of a good stock trading plan. If you do not have a good risk control plan in place in your options are very simple, simply do not trade. Make a decision now to always keep your risk under control. This one simple thing will save you tons of losses, grief, and frustration in your future trading.