The Trading Secret

The trading secret is keeping your losses as small as you possible can and to let your winner grow as large as they possibly can. Think of it as a business, because that is what trading really is. You can only make money if you have supplies. Well in the stock market your supply is cash.

“You need money to make money,” This phrase has been said again and again but has been widely misunderstood by the public. Most people believe this means you have to be a millionaire in order for you to invest and make good money in the market.

Actually what they are saying is that in order for you to make money in the stock market you must have something in there. Even if you only have $1000 you can still invest in the markets and start pulling out money. It also means that you should not put all of your eggs in one basket. If that basket falls and takes all of your money you will have no money left to come back with.

Because it takes money to make money you should take only small losses when you are wrong. You do not want one or two bad trades to completely destroy your account. You do not even want 10 bad trades, if it happens, to destroy your trading account. Never overextending your portfolio, taking small losses is the key. Keeping your positions small and keeping stops tight can help you to protect your account.

At the same time you are in the markets to make money not just to preserve your capitol. In addition to keeping your losses small, you should try to keep your winners large. Finding a good balance between these two works and is the key to trading successfully. That is all there is too this trading secret.

What I have found is keeping a target and a stop on a trade allows you to weed out trades that do not offer you a large profit if you are right with a small loss if you are wrong. I prefer to never take a trade that will not give me at least a $2 possible reward for every $1 I risk.