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In the world of investing generally – and options trading in particular – it is not only important to know when to get in and get out of a trade, it is also important to know how to do so.
Whether you still call trades into your broker, or enter them into an online platform, or use proprietary software to make your trades, the orders you give to your broker are incredibly important.
Retail investors used to just buy stocks at the market and wait for them to rise in value. But in 2015, it's not enough to just buy stocks or shares of a mutual fund and sit on them for decades – this is not your father's market. Things have changed a great deal in the last 25 years.
Thanks to computers and the proliferation of the Internet, the markets move incredibly quickly, and you need to be prepared for whatever happens next.
That means tailoring your orders to fit your trades and having them into your broker ahead of time.
Today, I'm going to show you how you can maximize your profits (and minimize your losses) with just a few tweaks to your orders.
Take Emotion Out of the Equation
Average retail investors are typically what I call discretionary traders. A discretionary trader is someone who trades based on someone else's work, regardless of the source. He or she could hand over a percentage of his paycheck to a firm that invests it for him, or take a trade based on a "hot tip" from their friend, or get all their investing advice from cable news.
When a big, sexy stock like Apple Inc. (NASDAQ: AAPL), Facebook Inc. (NASDAQ: FB), or Tesla Inc. (NASDAQ: TSLA) is making headlines and the stock is hitting all-time highs, analysts tend to go crazy, making all sorts of bold predictions about a stock's value just to get noticed.
This is exactly the kind of thing that ignites the emotions of a discretionary trader. Greed kicks in and makes this trader do things that he or she shouldn't.
The discretionary trader has access to information – good and bad – at warp speed and can trade on that information faster than ever, for better or worse. Email, text messaging, and social media bring you person-to-person news like never before, with many attempting to shortcut hard work by offering once-in-a-lifetime opportunity. Some know better; most don't.
I want to make sure you know better.
One of the best ways to remove your emotions from the investing equation is to use orders to automatically execute your trades rather than force yourself to make difficult decisions about your money in high-pressure situations.
About the Author
Tom Gentile is one of the world's foremost authorities on stock, futures and options trading.
With more than 25 years' experience trading stocks, futures, and options, Tom's style of trading systems and strategies are designed to help individual investors propel themselves past 99 percent of the trading crowd.