Is this a really secret of Stock Market?

Discussion in 'Psychology' started by mark04, Oct 13, 2009.

  1. mark04


    Dear Fellow Traders,

    Everyone related to Stock Market is always focused on the goal of how much they can make buying/selling a stock, they forget to concern themselves with how much they risk loosing. Is it true that “The secret to great wealth in the stock market, is not big gains; its small losses”

    Is this a strategy of keeping losses small? If we will win only 1 out of 3 times with our losers loosing 5% and our winners gaining 25% we can make extremely large profits. That’s do the math assuming that there is only 1 out of 3 winners. So if we make 9 trades of USD10,000 each in one month it means we will loose money on 6 and make money only 3. the 6 losers will cost us USD3000 (6*5% loss on each of USD 10,000 Trades) and the 3 winners will net us USD7500 (3*25% gain on each of USD 10,000 Trades) for a profit of USD 4,500

  2. DrEvil


    Not quite. The secret is keeping the aggregate of your losers smaller than the aggregate of your winners (including execution costs). It doesn't matter how you do this, as long as you arrive at this result.
  3. Agree !

    The other secret is to NEVER blow up !!!
  4. nickdes


    For me, it has been the ability to manage risk!
  5. you can lose the same amount of blood in a death by a thousand cuts as by one
  6. maxpi


    I try so hard to tell everybody but there's always that one person... it's "lose", not "loose", Mark...

    Money management Mark, it's called money management.. I don't do it but it's not a bad thing to do at all, especially if you barely have a trading edge.. read Dr. Van Tharp and read up on position sizing.. to those that don't have really strong trading strategy money management is indeed the secret. Those that have a very good strategy can do a lot less of it, maybe just keep an option in place all the time to protect against the Black Swan or something...
  7. i agree that good strategy also is very important and with good strategies and best timing one can implement it
  8. You don't need to add anything more ... everything is conceptualized with DrEvil's post below:
    It's so simple to understand, and difficult to execute, that the mind must be trained in its implementation, once it is discovered.
  9. You need:

    1. An Edge
    2. Flawless Trade Mgmt
    3. Discipline to follow both 1 and 2 every time.
  10. Redneck


    Well stated Sir

    #10     Oct 13, 2009