You can think of this commandment the same way you think of the old saying, "Never count your chickens before they hatch.". Trading is the same as many things in life. There are many variables and the landscape is constantly changing from minute to minute. You may be involved in a trade where the stock is on fire. You are looking at the stocks chart and adding up how much money you are going to have once it gets even higher. After all you have already made 20% on this stock. In reality unrealized gains don't count for anything. The money you earn from a trade is only real when you have a realized gain. A realized gain is money that has been put into your bank account.
I like this commandment because it helps me to think about trades pragmatically and prudently. However, I would be lying if I said that I didn't get really excited about unrealized gains. Anytime I have a stock that has gone up I am excited even before I sell it. It is good to keep in mind that anything can happen to a stock and send it tumbling downward within minutes. That being said if you trade high quality stocks the chances of that happening are pretty low. I make it a rule to trade high quality stocks.
0 comments:
Post a Comment