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Trading The Stock Market

Stock market commentary, analysis, insight and opinion of the RightLine Editors is available every Tuesday/Thursday evening & Saturday afternoon. The following is excerpted from the:

April 15, 2021 - The RightLine Report

Notes From The Editor

Thomas Sutton, EditorSo you've made some money in the market...now what?

When it comes to running a business, it's often said that unmanaged growth can be just as dangerous as lean economic times. The same can be said of trading stocks. Without the right approach, a temporary profits can quickly evaporate - or even turn into a loss.

Fortunately, this fate can be easily avoided by following some simple guidelines. It all starts with risk management. Using position sizing and trailing stops will ensure that very few active trades, once profitable, will wind up generating a loss.

But what about winning trades that you've already closed out? We've all experienced - or at least heard about - the phenomenon of being profitable "on paper," only to wind up losing those gains and never enjoying the fruits of your labor. To make those profits more tangible, don't hesitate to take some money out of your account and spend it on something that enriches your life.

How much should you take out? Well, that depends on your personal goals, and on how much you want to grow your trading account. But by occasionally spending a relatively small chunk - say, 5 to 10% - of your profits, you'll feel a real sense of reward and accomplishment. Pay bills, treat you or your spouse to something nice, add to your vacation fund; the possibilities are endless. Some brokerages even offer debit cards, so you can use that money as soon as the trade settles.

This also helps to avoid the "paper money" syndrome - the tendency to start viewing your trading account as something akin to monopoly money, rather than real cash you can use. When you lose sight of the value of your account, there's a psychological tendency to be more careless with your money. Risky trades and unmanageable losses may soon follow.

One caveat, however: don't get too caught up in the short-term reward of profitable trades. While rewarding yourself for a successful trade can be fulfilling, don't fall into the instant- trading goals. By balancing the long and short term, you'll stay motivated, focused, and excited as your account grows over time.

Here's to profits,

Kent Barton
Senior Analyst

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