Tuesday, July 21, 2009

Trading it's not rocket science

Buying and selling shares for profit is the dream of many, fortunes can be made, and as a 'business' it's completely scalable. If you can trade $1000 into $2000, then you can trade that $2000 to $4k and so on you'll be a millionaire in no time. However, doubling your money is unusual to say the least, doing it consistently is the stuff of dreams and not reality. Most successful traders are happy with a consistent set of small(ish) gains, balanced by smaller losses.

To minimise losses, you have to be prepared to sell and take a loss, psychologically that's the hardest part of the whole game. When you lose you lose face, confidence and are humbled by the market, it's a tough lesson. The pain can be managed by trading to your plan, and setting a stop loss, an automated sell, when the share reaches a low threshold. If you don't do that you'll hold on to a losing trade, and your losses will just grow. Buy and hold might work in the long term, but buy low sell high and protect the downside with a stop loss is the real way to make money in the market.

My trading golden rules :-

1) Know when to buy - important, but don't worry about buying at the bottom
2) Know when to sell - crucial, set lower and upper limits and sell, take that loss or profit and plan for it before you buy
3) Manage your money - it's all about risk management, only risk a small proportion of your stake at a time

Treat trading as an education process and expect to pay for that education. If you do that then you'll have the right mind set. Don't expect to make money from the get go, and don't expect consistency early on, but do track what worked and what didn't, Learn from that.

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