|Only Trade High Quality Stock Setups|
The most critical decision a trader makes on a daily basis is selecting a stock to trade.
Yeah, I know I have said that stock picking is only 33 percent of trading, while the other 66 percent is risk and trade management. That is true, but risk and trade management start after stock picking (though you should have a plan of action before entering the stock).
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Herein lies the rub. Traders have thousands of stocks to choose from, and even after working hard to narrow that list down, we still usually have 50-100 interesting stocks to trade. Yet most of us can only trade somewhere between two and ten stocks at any given time.
Since we are trading a limited number of stocks, we can afford to be selective. We should only pick the best of the best stocks and setups to trade. It’s a common sense approach to trading, yet I constantly come across Trade Report members and students who talk themselves into trading low quality setups when plenty of great setups are available to trade.
There are a number of psychological reasons for this that I’m not going to list here. Just remember to focus on your best setups and never fall in love with a low quality setup or stock. Any time you talk yourself into trading a low quality setup, ask yourself why you are taking this trade rather than taking on the 10 other stocks on your watch list that are more volatile, showing great money flow, confirming price action and fit every element of a setup you trade.
It is these simple, common sense trading ideas that everyone knows to follow, but few do, that separate the winning and losing traders. So remember, only trade high quality setups.
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