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Everyone's a genius during a bull market.

You book a string of winning trades and start to feel invincible. You get cocky. And you start to bet big. After all, you just can't lose. So why not swing for the fences?

As the fourth quarter kicks off this week, we're going to get back to basics. It's time to root out some of the bad habits that have the potential to derail your profits in any market environment.

Here's the deal: If you find yourself constantly dealing with knee-jerk, mistimed and unprofitable trades, you need to change your approach. To become a consistently winning trader, simply change your mindset with these three simple steps:

1. Don't gamble on a stock. Execute a trade.

Eliminate the gambler's mentality from your trading routine. It's tempting to go ?all-in? on a hot stock ? especially when the market's cranking out new all-time highs every single month.

But a successful trader doesn't push all his chips into the pot on a whim. He grinds out the wins, assessing all 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 take some profits off the table.

Having a set of rules and following them to the letter will keep losses to a minimum. Remember, you shouldn't only avoid risky trades when the market isn't cooperating. Only trading the stocks that fit your stringent criteria is our ultimate goal ? even in a rip-roaring bull market.

2. Beware the traps of overtrading.

During a strong bull market, a careless trader will pinball from one hot stock to the next.

That's why you must understand that how often you trade affects your overall profitability.

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. It's a surefire way to churn your account.

Back in June I told you about StockStream ? a bizarre stock trading game for bored millennials. It's a live feed on the Twitch video game streaming network where anyone can log on and vote on what stocks to trade. StockStream was created by an Amazon engineer who is letting strangers on the internet ?invest? $50,000 of his savings?

Here's how it works: A new round of voting begins every five minutes. Twitch viewers type in the tickers they want to see bought or sold in the chat window. When time runs out, the top trades are executed on the Robinhood trading app and another round of voting begins.

Here's how the platform looks when you log on:

Investing is hard. Trading is even harder. Anyone who as ever traded a single share knows it. I seriously doubt a group of 60,000 anonymous kids on the internet can collectively beat the market by trading every five minutes. I'm even more surprised that a group of trolls or pranksters hasn't successfully hijacked the voting and tanked the account.

StockSteam is sitting on a small profit right now. It's total gains after months of nonstop trading are just about 3.5%. And we haven't even seen a real market pullback yet?

Bottom line: Overtrading isn't going to make you rich. But it might make you go crazy.

3. Practice Risk Management

Here's a common scenario. You make four trades. Three of them are winners, and you book $250 each for a total of $750. But you broke your rules on your fourth trade. And you ended up losing big. It cost you $1,000. Even though you profited from 3 out of your 4 trades you ended up booking total losses of $250.

Bad risk management leads to bad returns ?even when your winning percentage is high. This is one of the biggest threats to your profits during a market melt-up. You see stocks screaming higher every day, so you're more likely to override your stops and try to allow a losing trade to improve.

The stock market continues to rip higher as we begin October trading. Even if we do see a small pullback, conditions are ripe for a fourth-quarter melt-up. I have little doubt you'll find plenty of opportunities to book trading gains over the next three months. The key to keeping (and growing) these gains lies in these important trading tactics.

Sincerely,

Greg Guenthner
for The Daily Reckoning

The post 3 Keys to Multiplying Your ?Melt-Up? Gains appeared first on Daily Reckoning.