Friday, August 8, 2008

In a Hurry to Get Rich

New Traders are almost always in a hurry to get rich. When given a choice between a conservative trading method that makes 40% per year, and an aggressive 'calls' service with no track record, most prefer the 'calls' service because there is the unknown chance of getting very rich, very quickly. If there is no track record, then it is also possible that I may make 500% in a month, who knows ?
Lord Overstone, one of England's best known authorities on banking, in the 19th century,said, " no warning can save a people determined to grow suddenly rich.". Remember, the Tech bubble. People wanted to get rich quickly, then and there. Most people venturing into short term trading think of their attempt as "I am going to make money, even as everybody else loses".
I would humbly submit that New Traders have a lack of knowledge about trading, are totally ignorant about the markets,. yet, they are willing and able to spend good money to prove that they are expert traders. The end result is already foreseen. All of the Novices fall away, nursing large losses.
Think carefuly. When you want to be an engineer, you go to engineering college, then become an assistant, then after 7 or 8 years from the time you started college, you finally become an engineer.
What are your efforts when you wish to become a trader ? One day you decide to trade, the next day you become a trader. The market welcomes such people since they wll soon give all their funds to smart money.
Here are some steps that should take you on the path to trading success:
1. Learn the business. Read books, listen to experts, browse the web (of course, read this blog!).
2. Start small. Your loss in any single trade should not exceed 1% (one percent) of your trading capital. if you lose 10% in a month, stop trading for that month. Start again the next month.
3. Always, have a trading plan. Write down the plan.
4. Remember, losses are the cost of doing business. Do not worry about small losses. Losses are inevitable. But, you have to keep these losses under control. Worry about losing money that exceeds your limits.
5. The key to successful trading is: a number of small losses, and, few large profits. The profits take care of the losses as well as provide a positive return.

3 comments:

Shashank Jogi said...

I would not call 40% per annum as conservative. Certainly not conservative for me. The associated risk could lead to financial disaster. Trying to achieve 40% per annum runs the risk of large drawdowns, sleepless nights and stomach ulcers. One really has to be very lucky to achieve such returns with consistancy and low risk.

Yet people seek out stocks that could double in 6 months, every 6 months!!

But if you are able to achieve 40% per annum with low risk ideas, kudos to you! I would like to learn how.

Trading is a calling. Many are called and a few survive eventually. Those who survive are invariably those who manage risk well. As they say, professionals manage risk, amateurs shop for returns.

Everything you have written in the mail is bang on target.

I urge people to read your blog.

anshul said...

even more than 40% return in trading business is possible i am the living example of it...

anshul said...

these r the basic rules for beginners...and very useful for experienced traders too..beginners should print the copy of this post and should frame it and should hang it on wall..and for experienced traders these rules should be used like as { back to basics}...