So you want to enter the market or have you just started going into the market? So, what do you think about how to invest? Do you like susuations a day with bead purchases and sales or maybe you really like the idea of buying bargains to see the real value appear later? Do you devour the Warren buffet words with enthusiasm or do you prefer to read Tomes on technical analysis such as the candlestick pattern and breakout Donachian? Or maybe every word I just said was all Mumbo Jumbo and you just want to know what to buy now?
This article is designed as a general description of the element you need to develop a trading system that will allow you to become a successful trader, and to show some common misconceptions and mistakes made by people along the way.
OK, what is the best style to trade? Well it really depends, there are people out there making money from short-term trade and from medium-term trade and from long-term trading and every increase of them. However, the thing to remember is far more people lose money regardless of the investment style.
So, what separates the winner from a loser? Which is quite simple that good traders are those who have a trading system or style with excellence and enough discipline to exploit it. Now just to make sure we are all on the same page, for the purposes of this article to be the amount you will make on each average trade allowing costs such as the cost of carrying out your trade and tax. This edge is what your trading system is built so you need to understand exactly how your edge serves to design your trading system.
However, when most people start trading, they only consider entries. I don’t remember how many times I was asked for stock tips, but unless the person understood how much to invest, when to sell etc. This is useless information. Even in trading a very good book your trip to financial freedom there is a trading system that makes money based on stock randomly and bought it but because of the exit criteria and position size, in the long term it will make money. You need to remember it is the whole trading system that gives you your advantages and must describe what will happen at every point of your trade – how you enter trade, how much you use and in what conditions you get out of trade.
As an analogy allows a comparison between supermarkets and jewelry. The supermarket has a very low margin, usually only a few percent on each item, while jewelry can have 100% margins and more. So, if it’s true how supermarkets survive when their margins are much smaller than the jewelry people? You’re guiding, supermarkets sell more items at the same time that jewelry sells one.
So let’s consider two trading systems, which generate 10% per trade and others produce 100% per trade. Now let’s assume we can make one trade 10% per day and trade 100% every 10 days and start both trading systems with $ 1000. At the end of 10% trading day we have taken our account to $ 2000, a 100% increase. But every 10% trade will produce US $ 100 and we can do one of these every day. This means we have made 100×10 = $ 1000, so both accounts have $ 2000 at the end of 100 days?
Actually this is not because we have compound power to work for us in the second example. Compacture is the ability to use your advantage as part of investment in your next trade to increase your profits. So for example if we do our first trade, we now have an initial $ 1000 plus the increase from the first trade, which is $ 100, so we now have $ 1100. If we now use this for the next trade we will produce 10% for this, which is not $ 100 but $ 110 (10% of $ 1100) if we keep doing this we don’t end with $ 2000, but it’s actually closer to $ 2600 … enough a repair! This is an example of what I mean about understanding your EDG