Dear Financial Voice Reader,
What will the election mean for your investments and for the Pound?
It makes no sense trying to go against a multi-trillion dollars market because you're angry or "you know better", the market will wipe you out. Understand when you're wrong on a trade and get out as soon as your stops are hit, never move them or add to a losing trade.
What that means comes down to two lessons basically: first, that you should not get stuck to a losing trade more time than what's needed to find out that your initial idea was wrong. And secondly that trading is a game or a business where ego has no place.
Talking about not going against the market, what is really important to understand is that each trade is essentially a bet, an attempt to get a feeling of where the market is heading. And as such there are levels and indications that pretty much confirm the market's intentions for the time being so if your trade is towards the opposite direction simply get out of it.
Don't get fixated and try to stay in the trade "just a bit longer" only because "it might eventually reverse in your favor", it rarely does. And most of the times you will lose more money than you should and also waste time waiting for more or less a miracle or better put a rare exception.
So don't try to outsmart the market or stomach supposedly "temporary" losses, the market will always outstretch you to a point where your account simply can't take it. Instead, trying to understand what the market wants to do and calmly follow it is much simpler, much safer and mostly stress-free.
Trading is like a small business, it requires a starting capital. You wouldn't want to fund your account with such a small amount that a few mistakes will wipe it out. You need to provide yourself with the opportunity to make mistakes and still have the chance to correct them and move forward.
Always keep in mind that making a loss means that you need to over-perform the next time to cover your loss and break even. It is key to understand that for example a 5% loss requires a 5.3% gain just to bring you up to your original capital and so on. So each loss hurts more than an equal win, this is an important lesson to understand.
Hence having an adequately funded account means that you prolong the life of your trading career and allow yourself to make mistakes, learn from them and then over-perform to break into profits.
And with that I will end this first part of this mini-guide but before that I want to stress something really important. Trading is one of the very few things in life where mistakes translate to an immediate loss of money. It’s not that you don’t make money, you actually and immediately see your capital going down. So sticking to a few rules or “commandments” literally translates to preserving your capital and avoiding simple yet treacherous pitfalls.
I’ve made a complete online course to teach you how to trade shares. You can find it here: www.udemy.com/tradingonline (it’s free to keep for 30 days) and if you use the ‘asianvoice’ coupon code you get a 50% discount on keeping it for life.
Alpesh Patel
