You have done all your homeworks and training and paper trading and you are now ready to open your real position. As instrument we will use an etf on the S&P 500, plain and edged, so that we focus only on the variations of the reference index.
Before opening the position, there should be some kind of analysis that gives you an idea of how the market is moving and highlights some peculiar moments when the risk/reward blows into your sails. Let say that you are investing on the daily time frame. You may move on a shorter time frame, let’s say one hour, and get signals from a combination of technical indicators (the simpler the best, usually) that helps you to catch the turning point.
Now that all the setup are triggered, you get operative.
On you trading platform you pick the instrument (here the etf on the SPX), you setup the quantity (100), the price (17.70) and you press the BUY button. Usually you will see a confirmation screen to approve the action. Say ok and you are the happy owner of 100 etf payed 17.70 for a total invested 1770 $ (or euro, or yen, or any other currency). Game over. All the adrenaline is in circulation and the thing has lasted 7 seconds? Yes, it’s that simple. It’s so damn simple. Always treat your BUY and SELL buttons religiously.
After the execution you are watching the one hour chart and you may setup a stop loss alarm, because it is always possible that the market turns out your position and goes furiously opposite and you always must put a limit to your losses. Let’s say, being this a virtual etf, that a stop loss can be placed at 17.50/45, with warnings at 17.60 and 17.55. Such a stop loss implies that you close your position (by hand or automatically) when price clears the stop, in this case a bit more of a 1% contrary move. Stop losses have an enemy: volatility. A peak of volatility can wipe out your stop and get you a loss even if then the position would have gone positive. This is why I prefer to have warnings from the price ticker and than execute the order by hand. You, just use the procedures that best fit for you.
Now abandon the one hour charts and return to the one day, that is your terrain. Do not get fascinated by the fast moving short term market more than necessary: it’s hypnotic and mentally exhausting. If you are suitable for short term trading, you will discover soon.
You may estimate that you have a time window when you open your position and you may dilute your global position in more successive buys. It is probably better than my habit to promise to dilate the position openings and then use an all in technique.
The physiology of trading says that every time you open a position you have a – hopefully short – subsequent period of losses. If you are in a good position, this time is short and you see the light quite soon. If otherwise, probably your position is not so good.
upcoming: Finance for newbies: closing the position
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