![]() | |
![]() | |
![]() |
Investing Information |
|
![]() |
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: Is ServiceNow Stock a Buy? The Motley Fool 3 Stocks to Avoid This Week The Motley Fool Why people are investing $650M in Skowhegan Bangor Daily News How Much Income Can You Make Investing $10,000 in Warren Buffett's Top 5 Dividend Stocks? The Motley Fool The Best Stocks to Invest $1,000 In Right Now The Motley Fool Will the U.S. Stock Market's Bull Run Continue? Investing.com Tax-Aware Investing: What Is It and How Do I Do It? | Chase Chase News & Stories Investing in Method Andreessen Horowitz Investing When Your Time Horizon Is Short The New York Times Are Growth Stocks Back From the Dead? Investing.com 4 big stock buybacks: Chevron, Jacobs By Investing.com Investing.com Investing in Voldex Andreessen Horowitz EVAN GUIDO: For next generation of stock market investors, keep it ... Sarasota Herald-Tribune Why You Should Invest: Top 10 Reasons AllBusiness.com Gold prices muted as Fed week kicks off By Investing.com Investing.com The 10 golden rules of investing Yahoo Finance Ultimate Guide on Investing for Beginners Entrepreneur Lucid up on SAPIF takeover speculation By Investing.com Investing.com Investing Strategy, Top 10 Options Trades to Make Now: GS Business Insider Blackstone's Stunning Outperformance Showcases Why Investors ... The Motley Fool Investing in 2023: A Year to Be Patient and Selective Morgan Stanley Investing in Cygnvs Andreessen Horowitz LeBron, Mahomes, Tom Brady investing in pickleball. Who are others? Naples Daily News 5 Investing Alternatives for Conservative Investors Kiplinger's Personal Finance Investing in PLAI Labs Andreessen Horowitz 2 FAANG Stocks Investors Should Buy Hand Over Fist for 2023 The Motley Fool S&P 500 Earnings: Megacap Week Investing.com China's Reopening Proves Anti-Climactic Investing.com Litecoin Climbs 10% In Bullish Trade By Investing.com Investing.com Investors Stuck in Private Valuation Limbo as Recession Looms The Wall Street Journal Investing in REITs vs. Direct Real Estate Morningstar Investing in Batu Kawan Berhad (KLSE:BKAWAN) three years ago would have delivered you a 51% gain Yahoo! Voices While Republicans Push Back, Democrats Double Down On Woke Investing News Talk Florida Inflation, What Inflation? Investing.com Why Were Investors So Disappointed With Intel's Q4 Results? The Motley Fool |
![]() |
![]() |
![]() |
RELATED ARTICLES
Time is Money and We Are Running Out of Both! One of the fundamental principles of finance is the concept that $1 today is more valuable than $1 a year from now.Making adjustments for inflation, the dollar will buy less goods and services next year. Global Markets: A Window on the World Economy Expectations drive the market. Every stock price is driven by what people expect the company to do. Investing Online Has Its Rewards: Find Out How To Take Advantage Of Them Computerized investing. Online investing. The Benefits of Laddering Your CD Investments If you've decided to stock some money away in a certificate of deposit, why not reap the highest benefit over time by laddering your CD investments? What's a CD latter? I'm glad you asked.A CD ladder is made up by purchasing several CD's at one time with different maturity dates. Stock Market Money Management Skills Let's start by saying: You can't be afraid to take a loss. The investors that are the most successful in the stock market are the people who are willing to lose money. The Perfect Economy? The U.S. Wit and Wisdom on Money, Wall Street and Success - Part #2 Here are ten more WISDOM packed GEMS that ooffer very unqiue insights to the world of trading and investing.These quotes promote a philosophy which is readily understandable and sometimes hysterical. Remembering TEOTWAWKI and Learning from It Its only been about 5 years since we had major scares in the marketplace regarding Y2K. You might recall that many computer systems were not programmed to be able to understand the change from 1999 to 2000. Mutual Fund Selection Made Simple By Indexing! Non-indexed mutual funds try to keep it secret that actively managed mutual very funds rarely do better stock market indexes. The higher fees of the managed funds really make it hard for these funds to out compete indexed funds. Porters Five Forces Analysis If you've ever listened to Warren Buffett talk about investing, you've heard him mention the idea of a company's moat. The moat is a simple way of describing a company's competitive advantages. Going Against the Conventional Investment Wisdom First of all, I want to give everyone the disclaimer that I am not a registered financial advisor and I don't play one on TV. Therefore, I cannot legally provide financial advice and I will not do so. The High Price of Oil In less than four years, the price of oil has risen about 300%, or over $50 a barrel. The Light Crude Continuous Contract (of oil futures) hit an all-time high at $67. Almost Anyone Can Open A Roth IRA! The Roth is kind of weird until you get used to it in terms of how much you can put in (contribute) each year depending on how much you earn (compensation). Because of this you really have two limits, one dealing with your compensation and the other dealing with your contribution. Investing & Online Stock & Share Trading- The Stock & Share Markets are Booming But Be Warned I had the pleasure of being invited on a friend's yacht to sail in a race on Sydney Harbour yesterday. On board, as one of our motley crew, I met a top ranking corporate executive from one of Australia's largest banks, who we'll call 'Phil' here for the purpose of this article. To Retire Rich, Save and Invest Early If you want to retire rich, start saving investing early. The most powerful tool when it comes to retiring rich, is compounding your returns on money saved when you are young. Getting Started Investing is Often the Hardest Part There are several reasons people give for not investing their money in things like stocks, bonds, and mutual funds. One reason is that they feel that they don't have enough money to make a serious investment, but a more common reason that many people have absolutely no idea how to go about getting started investing. The Perfect Mutual Fund The Perfect Mutual Fund is the one you build yourself!The perfect Mutual Fund you build should have the objective of owning no more than 12 to 15 companies; owning shares in 12 companies would allow the diversity needed to sleep well at night and would provide a cash dividend every week of the year.The 12 companies (with staggered dividend payout dates) in yourperfect Mutual Fund should not only provide a cash dividend every week of the year, the companies should also have a historical record of raising their dividends every year for at least the past 8 years (to eliminate risk). Are You An Investment Dummy Like Me? I am good at a few things. I can certainly market well and I consult with others about how to bring more attention to their products and services on the internet for a living. Investing In Sons Business Could Cause A Real Family Feud Q: My youngest son wants to borrow $5,000 to start his own business. My wife is afraid to tell him no. Trading For A Living - Part 2 In part 1 of this article I started to look at the financial implications of giving up the day job to instead start trading full time for a living. There are more than just monetary considerations as we will see later, but for now, there are some more costs to ponder. ![]() |
home | site map |
© 2006 |