‘More Money Monthly’ could be a mantra for the ‘JAMs’ the ‘just about managing’. But actually there are many reasons people trade online. The key to success, as the UK election reminds us, we are not here to gamble, and ‘Make More Money Monthly’ does not mean act desperately.
To make your trading (more) profitable and professional these are the key attributes from both my expertise as a private investor turned hedge fund manager. The advice I give is based on not just my experiences, chronicled each week in the Financial Times ‘Diary of an Internet’ column for 5 years, but also formed from my initial learnings from 10 of the worlds leading traders who became part of my book, the Mind of a Trader, which in turn the FT published and led Bloomberg to give me my own show.
When I used those skills to win a competition in the Financial Times to forecast the markets and made the front page as ‘Top FTSE forecaster’ the obvious step was to step up and set up my own hedge fund with my new found increased fame. Oh, and launch my own software, which then went on to beat Warren Buffett since 2004 – by a lot.
So enough about my credentials – what about the best advice to you.
Trading is not gambling.
The trader trades very small position size relative to his capital.
The gambler will trade large size
The trader does a lot of small trades
The gambler will do a few big trades
The trader follows trends established in the market
The gambler steps in front of market reaction and guesses the outcome of news
The trader never adds to a losing position
The gambler doubles down on losses, so strong is his fear of losses – he actually makes them worse
The trader adds to his winning positions, knowing he is then not risking capital but only profits
The gambler takes flight at the first sign of profit
The trader knows a stop loss is essential and should be outside the zone of market noise.
The gambler has no stop loss or it is far away as to be redundant
A string of losing trades would mean the trader is down 2-3% on his total risk capital
For the gambler a string of losing trades, and he is down 40%
There are a few simple techniques, repeated ad nauseam, will professionalise your trading. Of course, this is completely if you are just trading with your risk capital for a bit of fun. That is perfectly acceptable. You may be just trading because you think the market is completely wrong on the price of oil, or that Gold should not be so cheap, or that surely the USD has to fall with the rest of the US market. Trading for fun is fine. But do not mix your fun and your professional accounts. In fact, keep two!
Alpesh Patel
