The Barry Bonds Secret to Trading Riches – No, It's Not Steroids...

Everything falls in sinking markets. Except idiocy. That increases…

Speculators get antsy and swing for the fences. They try to hit home runs when they should be scratching out walks.

Part of being a good trader is knowing when to take a walk. Smart traders have a high on-base percentage. Lots of walks. Lots of base hits. But tons of free-swingers strike out chasing the 3-2 pitch in the dirt because they’re so desperate for the big hit.

Today you’re going to learn three steps to becoming a high on-base guy. In other words, how to becoming a consistently winning trader. But that doesn’t mean you have to think small…

Did you know that Barry Bonds walked 171 times in 2001— a record— while on his way to hitting 73 homers? That was also a record, by the way.

There’s a lesson to be learned there— steroids or not…

While the stock market flails around this week, we’re going to dive into some bad habits that’ll send you down on strikes in any market environment. I’ll even show you how to fix these problems in just three simple steps…

I’ve chatted with countless traders, from Hall of Famers to Sunday softball leaguers. And the gambling free-swingers outnumber the Stan Musials 10-to-1. Sure, a lucky hitter can run into one every now and again. But he normally strikes out.

A free-swinging gambler might even go 3 for 4 every day during a hot streak and double his trading account in a matter of months…

But if you asked that same gambler to maintain his successes while limiting his losses (or to consistently grow his account year after year) he’d fail 9 times out of 10. He’d be out of the minors in just a few weeks.

And he doesn’t even need a terrible month in the markets like this one to erase his gains!

Look, gamblers trade out of greed. They follow hot stock tips and their gut instincts, not facts and research. And they hold onto losers far too long out of ego or hope.

If you find yourself constantly dealing with knee-jerk, mistimed and unprofitable trades, you need to change your approach at the plate.

To become a consistently winning trader, change your batting with these three simple steps:

1. Don’t bet on a pitch. Execute a trade.

Eliminate the free-swinger’s mentality from your trading routine. That guy’s itching to swing, and will fall for a curve ball in the dirt because it looks so attractive at first.

But a successful trader doesn’t guess at pitches. He waits for his pitch – he assesses the possible outcomes and trades with a plan. This plan should include best- and worst-case scenarios. These are your stop losses and profit targets. When a stock reaches your maximum acceptable loss you sell. When a profit target is reached on a short-term trade you sell. Don’t argue!

Having a set of rules and following them to the letter will keep losses to a minimum. It’ll force you to lay off the pitches you should—and avoid risky trades when the market isn’t cooperating.

2. Understand how timeframes affect your trades.

The free-swinger will jump on any hot stock and try to knock it out of the park. He doesn’t realize how timeframes play a role in his trading decisions.

Here’s a helpful tip: The shorter the timeframe, the less predictable the price. Unless you’re experienced with very short-term momentum strategies, don’t waste your time day trading. Not only that, most of your daytrading profits will probably disappear to commissions. It’s like tipping $20 for every watered-down $10 beer you chug at the ballpark.

And when you’re looking to trade a hot stock, be sure to determine its main trend. Don’t be fooled by late movement on the slider.

That way, you’re not trying to buy a sinking stock that’s temporarily riding higher on a countertrend rally. There’s nothing worse than buying into a quick rally that immediately fizzles out… and there have been a lot of these lately.

3. Don’t trade without an edge.

Successful hitters know their strengths and weaknesses. Some like it middle-middle. Others like it down and in. And they stick to their strength.

And guess what? If a good trader doesn’t get a good ball to hit, he takes his walk. No ball over the plate, no trade. So if the market’s pitching around you, take your walk. That leaves you in a much better position to score later.

As you’ve probably guessed, chasing balls is one of the most common problems afflicting the free-swinger. He wants to hit at all times. But his approach will leave him riding the pine with his strikeouts. And this lesson is especially important during the nasty market we’re currently experiencing.

Bottom line: This is the kind of environment where you’ll probably experience plenty of false breakouts, whipsaws, and other curveballs. That’s when undisciplined hitters get antsy. They’ll see a fastball down Broadway when it’s really a change-up out of the box.

If you’re a free-swinger, now’s your chance to step away from the plate and reevaluate your swing. Becoming a consistent hitter takes time — but no amount of practice will have you hitting .300 if you can’t lay off the bad pitch.

So stop swinging – and start hitting.

Sincerely,

Greg Guenthner
for The Daily Reckoning

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