Knowing When to Stop Trading

Why Taking Breaks from Day Trading Is Necessary

For any trader, pro or amateur, one of the hardest decisions to make is whether to stop trading for a while. Amateurs usually view this as surrendering, or giving up, but pro-traders understand that it's a necessary aspect of being a seasoned professional.

If you've been trading in the red for over three days, and your emotions are dictating your style and performance, then it's time to take a break. During your hiatus, however, you should remain very active in the stock market.

Later on I show you what I call “sideline trading.” You're going to find that break-taking can actually make you more profits. While you're pausing and sitting on the sidelines, your stock prices can hit key high points that you otherwise wouldn't have waited for. Thus you can enter at much more desirable and profitable price levels.

If the fear and/or greed factors are running you, you will only make bad decisions. When you know this is happening it's in your best interest to stop for a few days, or even weeks, or even months. Then and only then can you find the right perspective and finally get back to the battlefield with new confidence and new focus.

What to Do During Your Inevitable Break(s)

• Go back and review every single trade you've ever made. Start with the largest losses and the biggest profits. Look for patterns. Find your core issues and deal with them. Usually the issues are mistakes that you repeat. Resolve to stop repeating them.
• Continue to watch your current stocks on an intra-day basis. Don't ever lose track of their performance and rhythms. Just because you stopped trading doesn't mean Wall Street did. That way, when you return to trading, you will still be in the loop.
• Reevaluate your financial situation. Create a new budget that will allow you to return to active trading without the bad emotions you left with. Lick your wounds and move on.
• Don't just jump back into active day trading. First, take a full week to demo trade (paper-trade). Get your rhythm back in a risk-free environment before going live again.
• Don't return to active trading with the goal of retrieving the money that you lost in your previous battle. That attitude and strategy will only bring on more disasters.
• Lower your expectations.
• Remember that each time you lose money in the stock market you've paid a high price for a very expensive and painful lesson, a mistake you will not make again.

Taking breaks is all about understanding how to capitalize on those agonizing lessons.

From The Truth About Day Trading Stocks