| |
| |
|
The Power of Small Numbers: Trading Success is Based on Consistency, Not Home Runs
Online trading is so seductive - just sit, click, and rake in the profits! But as anyone who has ever seriously attempted online trading will probably tell you, it's just not as easy as it sounds. Many beginning traders are seduced by the lure of the "home run", that big trade that makes you an instant millionaire and retires you overnight to your own private island paradise. But then they wake up. To really succeed at trading of any type, you need consistency, even if it's with small amounts. The ultimate goal is to keep trading over and over to eventual riches, but by always going for the big wins they usually wind up with big losses instead. It's perfectly understandable for people to not be interested in small profits. After all, which would you rather have, big profits or small? But the fact is it's not such a simple choice. Small profits are more frequently achieved but when traders refuse to take them, they often lose much, much more. Small but steady gains over time can add up to some truly massive numbers. For example, in options trading (my main area of focus for the last few years) it is not at all uncommon to hear about profits of 100%, 300%, even 1000% in a single trade! And while these results are absolutely possible, by expecting them to be our every day results we train our mind to accept nothing less, and eventually doom ourselves to disappointment. Imagine training yourself to take 10% profits. And what if you also train yourself never to put too much of your money into one trade, but instead to manage it carefully? Say you put only 10% or less of your total trading account into any one trade? If you could make just a 5% profit on only half of your total account every month, compounding the profits monthly, you would have a better than 31% return in 1 year's time and over 115% in just 3 years! How many investments are you currently involved in that have returns like that?! The key is small numbers, not large ones. In trading, there are typically only 4 possible outcomes: 1. A large gain Assume that over time, your small gains and small losses will average each other out. That leaves you with only large gains and large losses. If you absolutely, positively never allow yourself to take a large loss, that leaves only the large gain. These large gains will ensure that you make a lot of money over the long run. You aren't specifically aiming for them, but we know statistically that as long as you can survive in the trading game long enough, you are bound to get some lucky "home runs" every now and then. You can't win if you're not in the game, and the way to stay in the game is through proper money management, risk assessment, position sizing, etc. Without these components most new traders blow their accounts out and never return to the game. Don't be one of those traders. There are fortunes to be made in online trading, but you must be able to stay in the game. It is said that "the best offense is a good defense" and nowhere is this more true than in trading. Controlling risk and managing your money will all but ensure your success. The last major obstacle is your own emotions, but that's a subject for my next article, "Emotions: A Trader's Worst Enemy". Jonathan van Clute is a full time investor, educator, speaker, and online options and sports arbitrage trader. In addition to his business activities, he is also a musician, video editor/animator, and one of the world's greatest Segway Polo athletes. He can be reached via email at jonathan@PMLinvestments.com and is speaking at an upcoming teleseminar, visit http://www.snurl.com/PowerNumbers for details.
MORE RESOURCES:
Google News |
|
|
|
RELATED ARTICLES
Inflation Proof Your Investment Portfolio with ETF's Even though inflation has been relatively quiet in the U.S. Before You Invest You Must Read This It is important to answer the following questions before you begin to invest any of your money. The answers to these questions will help to guide you to when, what, where, and how much to invest. Direcway & Wildblue Set to Square Off this Fall? There is a cat fight brewing between Direcway LLC, Starband and Wildblue Communications for the large number of people in the U.S. Volatile Oil The Light Crude Continuous Contract fell from $67.70 a barrel on Monday to $62. When It Comes To Investing, Asking The Right Questions Can Help You Make The Right Decisions Are you ready to open your pathway to financial independence?Well you should be. The sooner the better. Investing As A Sport? I said last week that money doesn't generally buy happiness, but the lack of it can buy absolute misery. This, by the way, is not just my personal observation. Is Starting A Business For Me? What To Consider Before Starting A Business Do you have the right temperament?Starting a small business is one of the most serious decisions that a person can take in life. Positively, it often results in higher income levels than one could achieve as an employee together with the unique buzz of being your own boss but conversely it also can be stressful, will demand longer working hours and will probably reduce your ability to take long holidays. Will a Falling Dollar Derail Your Plans for Retirement? How much are you willing to pay for a tank of gas? We've all watched as gas prices hit record highs, but what would you do if you filled your tank and paid by credit card only to discover on your monthly statement that you paid $80 to fill an economy car. No, this is not some future doomsday projection of oil prices. Retirement Plan Considerations Cheat Sheet for Small Business RETIREMENT PLAN CONSIDERATIONS are something every small business person needs to be thinking about. Do you have a strategic plan? Don't expect to have social security save you. What Age Should I Start Saving For Retirement? Ask this question to 100 people and you will receive 100 very different answers. The fact of the matter is there is no right age to start. The Switzerland of Asia Shines In many respects, Singapore is the Switzerland of Asia.Begun in 1819 as a British trading colony, the Republic of Singapore was founded in 1965 under the leadership of the current Prime Minister's father, Mr. Short Term Savings Products When you invest, it simply means that you are putting your funds in products, in this case short-term savings vehicles, which will allow you to reap high financial rewards.Here is a list of the more common short term savings products you should consider investing in. Investing for Retirement - Not an All or Nothing Play In 1519, Hernando Cortes, beached on the shores of unexplored Mexico, made a fateful decision: he would burn the ships he and his men arrived in and attempt to overthrow Montezuma and the mighty Aztec empire. The decision was risky. Ask The SEC Who is the SEC and why should I ask them anything? The Securities and Exchange Commission in Washington, DC is the government bureau that regulates the securities industry. They make the regulations that all stock exchange listed companies, brokerage houses and mutual funds must follow. Financial Planners "Financial planners are like dentists: they may occasionally inflict pain, but in the end, you will be better off for following their advice!"Whoever wrote these lines must have either been a financial planner or someone who relied heavily on planners for finance management. We all know that planning our finances is vital. Coca-Cola - A Value Stock? There has been much talk lately about Coca-Cola and its potential as a value stock - as it now spots a dividend yield of 2.6% (which is the highest dividend yield since the late 1980s) and a P/E or less than 21 - right at the bottom of its five-year low. Success Trading: Yet More Basic Terminology for New Traders In this day and age of online brokers for virtually every market out there, there are some very useful tools that will help protect your account and lock in profits when you have them. It is our recommendation that you use a good online broker and take advantage of not only the low commissions they offer, but also the automated tools that are available. Angels, Are They Real? They're real, but few survive. High risk investing is dangerous to your bank balance. Variable Annuities You know all the articles you read about annuities that have extremely high fees? And the ones that people lose a lot of money in? Well, these are better known as variable annuities. yes, they do have some advantages. Just what is Arbitrage Investment? In the simplest of terms, Arbitrage means to exploit price differential.Usually it meant looking at differing sources of an investment, and if there was a price difference between Source A and Source B - then the investor / dealer / broker / manager would buy from the lower priced source, and sell on the higher priced source.
|
|
|
|
|
