Trading stocks is really a fascinating study of many interacting variables.

At any time, any number of factors influence stock prices...economic reports...Fed action...random movements...cyclical influences...world events. Heck, even the weather often has an effect. The list goes on and on.

Synthesizing all these competing factors into a single stock price is the action of market participants...individuals, professionals, institutions, mutual funds, and hedge funds. Their actions move some stocks up and some down while others do nothing. And, within various sectors, trends develop.

The point of all this is to show why trading decisions are not always a simple matter. And, yet, traders must make quick decisions if they want to prosper.

How many times have you seen or heard traders offering different explanations of why they think the market is going to do such and such? You hear or read about them all the time. And, much of the time, their explanations are nothing more than their own opinions and biases.

However, you don't want to base your trading decisions on what they think. Much of what they say is what many market observers call "noise".

To make trading decisions easier and give traders better insight into the technical condition of the market, various technical indicators were developed. They measure such things as investor sentiment, buying and selling pressure, overbought and oversold conditions, relative strength and many other market measurements.

Many of these indicators are good and do, in fact, give traders a better handle on price action. But how good are they in helping you make stock trading decisions?

Their usefulness varies but they all share a common trait.

At times they signal a market reversal to the day. But, at other times, they tend to be too late or too early with their signals. And, while many traders like to use divergences between various indicators and stock prices, they often occur well before a price reversal.

But many traders persist in trying to time their market decisions with a group of individual indicators. It might be the Relative Strength Index (RSI), MACD, stochastics, moving averages, oscillators or any number of others.

So they find themselves trying to determine which indicator is right at the current time. It could be any of them. The problem is they often diverge with each other. Determining which one is right often amounts to...guessing.

And, when you guess, your emotions have a field day. Fear tugs and greed pulls. When one wins out, you usually discover the other was right. Trading like this is no fun and, more likely than not, leads to losses.

There is a better way to make trading decisions.

It's the use of a trading system and money/risk management.

Actually, the only decision you have to make is the decision to use them. After you make this initial decision, all your decisions are made for you.

A trading system tells you what to buy or sell and when. That's it. You don't have to decide which indicator is right or anything else. You get a trading signal and act on it...that's mechanical trading.

Then money/risk management takes over and makes your other decisions.
 

How much do you want to risk on each trade?

If you decide on 2% or 3%, that's where you always set your initial stop. If the stock declines by that amount, you are stopped out for a small loss. But here's what you accomplish...you prevent a small loss from becoming a large loss.

And you should always know where this price point is before you enter the trade.

If the trade is profitable, you cancel the initial stop and start following the price up with trailing stops. When a stop is hit, you're sell part or all of your position. By doing this, you protect and maximize your profits. The only thing you have to decide is where to place your stops.

With a little practice and experience, these decisions become rather routine.

When you think about it, this is a trading method that takes decision making to the extremes of ease. Let your tools make your decisions...while you make money.

And, if you're wondering about the profitability of trading systems, you should realize that all trades are not winners. But, part of the beauty of trading is, they don't have to be. Because of money/risk management, profitability is possible with far less winners than you might imagine.

Good traders can make money with a winning rate of 50% or less.

But here's the good part about this method of trading...your emotions are rendered helpless.

Making good decisions with your emotions tugging at you is hard at best. Fear and greed are experts at making shambles of trading decisions. They specialize in costing you money.

So what do you do? You take them out of the picture.

Oh...fear and greed are still there... lurking around in your mind...but they're mute. They still want control but you don't hear them.

When you trade mechanically and follow risk management procedures, your decisions are devoid of emotions.

Quite simply, this is a better way to trade.

But don't misunderstand about indicators. They're helpful and give you a good peek at the inner workings of the market. But, if you use them for trading decisions, develop whatever you use into a trading system. And trade it mechanically.

It takes the guesswork out of trading stocks.

So there you have it...

An unemotional way to trade because your decisions are made for you. There's no more guessing which indicator is right. Decision making doesn't get any easier. And, best of all, it's the profitable way to trade stocks.

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