Excitment on falling prices

              I become more and more excited every time the markets drop. No, not because I am
short the market, but because there is opportunity developing in the markets. One of
the biggest differences that I have noticed since trading successfully (vs.
unsuccessfully) is the excitement that I feel when the markets begin performing poorly.
When I first started trading, I would find myself disappointed when the markets
performed poorly and gleeful when the markets were rising. It only makes sense.
When the markets were rising, I was making money; I was hopeful. I felt that there was
more to come, and I would often buy more positions especially since I found myself
having more buying power during these periods. Then, out of nowhere, the markets
would begin to fade, and I would lose my newly created capital. Often, I would lose
more on the way down then I made on the way up. Certainly this was because I had
more capital invested on the way down. If this sounds familiar…it is time to change.
The first thing to understand is that the more risk that is involved, the more discounted a
position is. You get paid to take on risk. This is essentially how markets work. When a
stock position goes down day after day, it is “risky” to enter the position. After all, you
do not know when it is going up. Once it begins moving upwards–then, we all feel more
comfortable (it has started going up, so there is less risk of it going down–the
downtrend has broken), but we now must pay a higher price. Some people feel that it
must go up over several days and clearly break itsʼ downward movement (more safety,
less risky). Unfortunately, once the stock is much safer, it is also more expensive. And,
those that had taken on the risk are now paid (to sell it in the safer, less risky
environment).

How to reduce the risk

Determining how much of a currency, stock or commodity to accumulate on a trade is an often overlooked aspect of trading. Traders frequently take a random position size; they may take more if they feel "really sure" about a trade, or they may take less if they feel leery. These are not valid ways to determine position size. A trader should also not take a set position size for all circumstances. Many traders take the same position size  regardless of how the trade sets up, and this style of trading will likely lead to under performance over the long run.

More Profit

While many people still prefer the "fire and forget" nature of investing in mutual fund, more and more people are rediscovering the excitement and benefits of trading individual stocks. No doubt, this has been aided by the growth of on line trading, cheap commissions and a realization that many high-paid advisors and Wall Street research departments consistently fail to outperform low-cost mutual fund strategies.