You may sell your stock incurring loss, and you could call yourself it as a stop-loss. But the concept of stop-loss is entirely different from what we discuss here.

You can turn to be an investor though you want to be a trader. Yes, if you have a policy of not selling a stock for loss, you can keep them with you, waiting, watching them to move up at-least to the price level that you have purchased. But investment decisions are different from trading decisions.

I don't undermine the wonderful returns of Investing. I just want to caution you, how you can behave as an investor which may not a right strategy for you, as a trader.

What is the Difference?

Well, the buy decisions taken by an investor are entirely different from the decisions taken by a trader. An investment decision is all about "buying a business", wheres trading is all about "buying a price". An investor go by Fundamental Analysis and the trader go by Technical Analysis (or by some random indications).

Fundamental Analysis is about analyzing a company in-terms of its soundness in its business, considering its chances for future growth.

Technical Analysis is about analyzing a the demand and supply situation of a stock, considering many complicated market parameters.

Let me share with you the little experience I could gain.

The Three Things That Should Be Handled With Care

News

I remember it was a Thursday (in India), media came out with the news of Ranbaxy-Daichi merger. One of my client exclaimed "See the price of Ranbaxy, moves up!". I smiled at him. He was busy with the television news, he could not even recognize the smile at my face! He was buying the stock from people who had bought at lower price level, earlier.

How could a news cheat you?

Well, do you honestly think a great news like this could be kept secret till the media releases it?

Can you afford to "buy" so called first-hand-information? Though you can, is there any guarantee that it is a first-hand-information?

Can you go on digging, analyzing everything you hear about?

Why Ranbaxy have good R&D activity than any other Pharmaceutical company in India? Why it tops the list of companies in patent filing? Why it is the second on the list in patent filing in US, till the day I am writing this article? and about how Ranbaxy is smart in a tie-up with Bayer, when it comes for its one day pill for Aunthrax?...the questions go on... it is not reasonable, and it is beyond the scope of stock trader to investigate everything.

I have been pointing out the fact to my clients, that Japanese Candle Stick chart was showing..oh! sorry, the charts were predicting the price movement of Ranbaxy earlier on Monday. The stock was moving up right from Monday and really it did not move up much on the day the news came out, as it moved for earlier three days.

Expert

If you have not thru with my earlier article Single Technical Indicator for Making Good Profit in a Bull Market,  I suggest a reading so that you can understand how easily one could pick a profitable stock during bull run.

I picked a stock on a day and the stock moved 10% up on the day itself. Very next day, an Indian Market expert recommended the same stock to public, which was already 10% up!! (No harm it was really a good recommendation)

I am not such an expert appearing on television; I don't beleive that expert could have missed the thing what a person like me could see one day earlier.

I worry...some experts are traders themselves and some of them are portfolio managers too, who trade for their clients. Obviously, an expert's opinion would influence majority market participants decisions.

Self Appointed Expert

Self appointed experts could be your friend or relative. Thanks to sophisticated charting tools, one could draw some trend lines as they think wise. They may say "NIFTY is heading towards 2000" or something like that.

Some of the self appointed experts collect news, views of experts, and write on every magazine as they  believe that they have something to write about the market!

Advice

Generally, I would prefer giving suggestions rather than advice. This time I would like to break my own rule.

"Be ware of the three pitfalls and learn how to prevent yourself"

Good Luck!

When a contract is initiated between two participants it adds to the open interest. Both parties agree to a certain type of transaction say, A agrees to buy 100 shares of stock at a certain price while B agrees to sell the same at that price. If both parties are closing the existing agreement then open interest will decline so many contracts.

When a contract is traded the participant changes but the open interest remains the same. What is important for a stock trader is the change in open interest on any given day. If open interest is increasing it indicates that participants are willing to commit more money in the market. That means the current trend can continue whether it is up or down or range trading.

On the other hand decreasing open interest indicates winding up of positions/contracts. That means the current trend is nearing its end for the near term. For example, if the current trend is down, then the contracts will of the type short and unwinding of these contracts means short covering. That indicates rally in the stock for the time being.

As volume is an important parameter in confirming a breakout in a stock, similarly open interest change can confirm the trend in a stock. If open interest rises while the stock is rising, it means that many long contracts are initiated and the stock is in uptrend. Any pullback can be used as opportunity to buy the stock.

If open interest rises while the stock is falling, it means that many short contracts are initiated and the stock is in down trend. Any rally will be later used for getting out of the stock for a better price.

If open interest falls while the stock is rising, it means lot of short covering and tells that it is a bear market with temporary rally. Here also stock can be sold for a good price.

If open interest falls while the stock also falls, then it means that trend is nearing its end and the next bull market may start soon.

Knowing open interest is beneficial in trading stocks but it itself not the complete indicator. Proper sense must be applied when taking decisions. For example, the quantity to buy or sell must be decided based whether stock is at its all time high or low or depending the risk/reward ratio along with inferring direction from open interest.

1. Don't confuse brokers with financial planners. Although full-service brokerage houses provide information along with their advice, they may not tell you whether buying any stock is the wisest use of your money. Remember that all brokers are in business to make money for themselves first, and you second-maybe. This is not to say they're dishonest; it's just the way the game is played
2. Know what you're paying for. Full-service brokerage firms like Merrill Lynch, Shearson Lehman, and Prudential cost more per trade than discount and on-line brokerages. The higher fee buys you information about market trends, suggestions about what to buy when, and general advising and hand-holding through the investment process. There's no guarantee that trading through a full-service broker will net a larger return on your investment, but it does spare you the trouble of following the market yourself. Of course, you must still pay close attention to how the broker is handling your money and whether you're satisfied with the results.
3. Not all discount brokers are the same. Jane Bryant Quinn classifies discount brokers as either “business class or coach.” “Business class” discount brokers are known as the Big Three: Charles Schwab & Co., Fidelity, and Quick and Reilly. The Big Three offer essentially the same products and services as the full-service firms, but don't give advice on what to buy. The “coach” firms offer the deepest discounts (they charge an average of 73 percent below the full-service firms and 41 percent less than the Big Three) but they only execute trades and don't offer other services. They are mainly used by seasoned stock investors who know exactly what they want and require only the transaction itself.
4. Look at e-trading. Placing buy and sell orders over the Internet is a very popular way to trade stocks and may become the primary way to execute such transactions. On-line trading doesn't entirely eliminate the “middle man,” because you still must open a brokerage account before you can begin trading, and you pay a fee for transactions. But it could be your least expensive, most flexible trading option. When evaluating on-line trading firms pay special attention to:
5. How swiftly the firm executes trades
6. The level of advice that's offered (if any)
7. Whether the firm's research and information match your investing preferences
8. The firm's track record for outages. This is still the Achilles' heel of the Internet. What methods does the firm use to shore up its reliability when on-line service is interrupted?
9. Scrutinize service quality. Before choosing any firm, be sure to investigate the level of customer service provided. Even if you want no help at all with your investment decisions, you still require a basic level of customer support. Ask people who use the firm how satisfied they are in these areas:
10. Hours of operation and telephone accessibility. An inexpensive brokerage that's not open when you want to make a trade is hardly a bargain. The same is true for telephone service-low trading fees aren't worth the risk of busy signals and lost opportunities to trade at the price you want.
11. How swiftly trades are executed. Once you've put in your order, how fast can the firm come up with enough buyers or sellers?
12. Real-time quotes. If you plan to do daily or rapid-fire trading, will this firm give the exact price of the stock at the moment you call (or log on)? What is the charge for this service?
13. Easy-to-understand statements. Ask a prospective firm to send you a sample statement. You would be unhappy to find you need the Rosetta Stone to decipher the year-end account statement.
14. Don't sacrifice stability. Make sure any brokerage you sign with is insured by the government-sponsored Securities Investor Protection Corporation. Don't entrust your money to a trading firm without SIPC coverage.
15. Ask about a minimum. Some brokerage firms require a minimum investment to open an account. Determine how much money you want to invest, and find out if you're playing in the right league before you launch into any other questions.
16. Request an information packet. Ask each prospective brokerage to send you a packet listing all their fees and charges. This is the only way to know if the rock-bottom commission fee that's advertised is a true bargain, or only the tip of the financial iceberg.

Here is a system that would be more reasonable to test with the phone to show you ways you may have not considered before. Buy only stocks (never use real money unless it is risk money and you have tested the effectiveness of any method including the method described below), according to the following recipe:

1. Create a list of stocks that have a positive earning. Never include a stock with negative earning.
2. Reduce your list of step 1 to only stocks for which the latest earning is higher than earning a year ago.
3. Reduce your list of stocks that passed step1 and 2 even further. Now your stock must be such that its price today is greater than its price one year ago. This may sound counter-intuitive but if the price price is higher than a year ago it means that it has been performing well, and if it continues to do so you may be selecting a good stock.
4. Buy a stock only at a pivotal day for the market and for the stock. A pivotal day is the first day when the price of your stock reaches a price higher than the higher price it reached the day before, and the low of price of the day before is lower than the price of two days ago. Do not under-estimate this rule.You essentially want to buy your stock after a retreat, and only when the retreat has ended. The rule described in this step aims at achieving it.
5. Allocate only 5% of your capital to any one stock.

Test the recipe of this article for a long time before considering trading real-money. Also seek professional advice and learn from professionals. To get you started I am including a link to a trading course containing some elements related to this article. The methods described therein work for any financial market including stock trading as well as forex trading. 

How about a company that is one of the biggest companies on Wall Street? Do you think that such an undertaking would be a good investment for you? Probably.

However, I want to emphasize a number of things. First, there were many employees of Enron who loved the company. Most employees have even a portion of their wages as shares and options.

Did you know that during the rapid plunge, there was not even a single sell recommendation from Wall Street analyst? As the stock rose from $ 90, it had several retracements that when the stock price went down; it took a bit of increase before descending again. As it went down, what do you think investors were doing? They kept on buying. Why not, it is one of the biggest companies on Wall Street.

When the stock price of Enron reached $ 65 mark, investors were somewhat relieved. They probably said: "Well, it is now finally back." Not so fast, the stock may retraced a bit and but it began to decrease again. Enron's stock did this twice at $ 50 and $ 35, before falling completely off the map, so to speak. Throughout this event, inventors kept buying the stock of a dying company.

The candlestick that plays a major role before negative turn of a stock is the "hammer down" pattern. It looks like a hammer only but an inverted hammer. It looks as shown in the picture below. The closing price is lesser than opening price.

But this one stick is not enough for a good sell decision. The stock must have run up quite significant compared to past month or so. This is the reason why we need to have a look at its candlesticks on previous days for one or two weeks. Those sticks must look like these:

The last candlestick which looks like an inverted hammer is the one that gives a signal. This is typical of all momentum stocks. The next day the stock may open higher than previous close but it will surely fall down as this stick forms only when the big bulls have ran out of steam and bears start short selling.

Having applied this pattern to my own stock trading I had finally concluded that of all different candlestick patterns this one holds good with the highest probability and virtually all of the time. This is highly useful for swing traders who do not have problems with initiating positions but only with exiting positions.