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 âThe secret to great wealth in the stock market, is not big gains; its small lossesâ 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. Thatâs 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 Regards Mark
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.
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...
i agree that good strategy also is very important and with good strategies and best timing one can implement it Mark
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.