- Are you making this common and costly trading mistake?
- What to NEVER do as a 21st-century trader…
- Plus, how to avoid the perils of chasing trade alerts…
Sometimes it’s hard to find solid trade ideas. During certain periods, I’ll scour the market for days on end — with little or no plays to show for it.
But over the past week, as the stock market lifts off of a near-term bottom, there’s a different problem arising … There are too many plays to choose from.
With the market shifting bullish, many traders are posting multiple trade alerts on social media every day. So how can you learn from — but NOT CHASE — the alerts on your timelines?
Are You Chasing Your Trades?
First of all, what is chasing?
To me, if a stock has three or four green days in a row without consolidation and you enter a long trade, that’s chasing.
When I send out my alerts, I often remind subscribers to not chase. I ALWAYS want to share my trades with students, but alerting plays can be a delicate balancing act…
As a trader, chasing a volatile stock is extremely risky, especially after it’s already moved significantly in a particular direction.
Getting a bad entry can ruin any chance of making a profit. Worse, it can lead to a loss.
Remember: Being early (or late) on a trade is the same as being wrong.
Think about chasing from the perspective of an options trader. One example would be buying a call option into a big spike — or a put option into a big drop — that hasn’t shown any real consolidation.
If you aren’t careful, you could find yourself chasing the play because other traders are talking about the setup.
In other words, it won’t be your hard work and preparation leading to the trade — it’ll be FOMO.
Chasing hyped-up plays is a recipe for DISASTER that you should avoid at all costs.
By entering a trade without taking into consideration the possibility of a price reversal, it exposes you to unnecessary risk. And that can end with a big loss.
So what can you do to avoid this negative exposure?
How to Avoid Chasing
Much to my dismay, I’m seeing a lot of students chasing alerts recently.
Here are some steps you can take to help avoid being a chaser:
- Always limit orders, NEVER market orders. When traders get overexuberant, they mash the “market order” button. They let the importance of cost basis move to the back of their minds. DO NOT make this mistake. Instead, ALWAYS send limit orders. Pick the price at which you’re willing to enter the trade and STICK TO IT.
- Wait for consolidation. If you get alerted to a play that’s too far along in its pattern for you to jump in — add the ticker to your watchlist. Then, WAIT PATIENTLY for consolidation. If I had a penny for every time a little bit of patience could have turned a trade around for me, I’d be even richer than I already am.
- Do your homework. Every alert isn’t created equally. I don’t want to give you the impression that you should avoid all of them. Say you get an alert — then use it to conduct your own research. That’s very different from blindly chasing a play. Do the former, not the latter.
- Chasing alerts is a risky business. It’s important to steer clear of this to avoid unnecessary losses.
- This doesn’t mean you can’t pay attention to alerts — you just need to do it cautiously.
- Sending limit orders, patiently waiting for consolidation, and doing your own due diligence could help you avoid chasing alerts.
When I see students losing money from following last-minute alerts with no research of their own — I have to step in and say something.
We’ve all been there. And now that the market’s heating up again, this problem’s exaggerated.
So please, don’t find yourself in the unfortunate situation of bag-holding an alerted play. Be disciplined. Sort the wheat from the chaff and DO YOUR HOMEWORK.