Is this a really secret of Stock Market.

Discussion in 'Commodities, Stocks, and Indices' started by mark04, Oct 13, 2009.

  1. mark04

    mark04 Active Trader

    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. Bernardcraig20

    Bernardcraig20 Active Trader

    Knowing the current situation of the stock market is crucial especially if you have stocks invested in it. It is better to be up to dated to the situations so that you could know the actions to be taken if some changes in the stock market occur as to secure your stocks to lose. Today, the stock market is unstable so we need to be vigilant to the current market conditions.
  3. BellaVega

    BellaVega Active Trader

    I don't know if I entirely agree with your thinking. If you can pick a stock that will gain 25%, then you shouldn't be only winning 1 out of 3 times. Although I guess you could set up your system to sell when they drop 5% so you don't lose you whole investment and sell at 10% or higher. I think the secret is to not only buy stocks that you think will gain but short the stocks that you think will tank.
  4. cheeseweasel

    cheeseweasel Active Trader

    You can't really base your calculations on assumed figures, you need to test to find out the actual figures of your trading method.

    But working towards a system with a positive expectancy is a good thing. :)
  5. marrabel

    marrabel Banned

    The less you lose the more you earn. Getting the good results when following the right strategy is a good situation of trading.
  6. DonnaMag

    DonnaMag Trader

    Hi Mark! Money management is probably the most important issue in trading. A trader's basic statistic should be more than 50% of winnings. However, it is impossible to earn money even if the ratio is 1 win to 2 losses, or even worse than that. The secret is to cut losses as fast as you can, while letting your winner "breath" as much as possible. In that case, if I had 3 losses of 20 cents (total of 60 cents) and one win of $1, then I am profitable in the end of the day. However, one should intend to win as many trades as he can. An experienced trader knows how much he takes or losses on average and he tries to maintain a positive statistic.
    Good Luck and Happy Trading :)

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