39. How to Join the Minority of Traders Who Are Successful

http://www.informedtrades.com/

A lesson on the importance of the preservation of capital as part of a trading strategy for traders of the stock, futures an forex markets.

In our last lesson we looked at what one can reasonably expect to earn from their trading over the long term, and how one can avoid the common misconceptions of most traders which ultimately cause them to fail. In today's lesson we are going to look at the next step in developing a successful money management strategy which is how to manage your losses.




One of the main key's to successful trading is the preservation of capital. Beyond the obvious point here that if you loose your trading capital then you will be out of the game, is the fact that it takes much more to come back from a loss than it does to take the loss you are trying to come back from.

As an example here lets say you start with $10,000 and loose $5000 from a string of bad trades. That $5000 loss represents a 50% loss on your account which now has $5000 left in it. Now ask yourself this question. What percentage gain will you need to make on the $5000 left in your account in order just to be back to breakeven (the $10,000 level) on your account? If you have done the math correctly you will see that in order to make back the 50% loss you took on your account you will need to make a 100% return or basically be twice as successful in your comeback as you were unsuccessful in your drawdown.

It is this concept that is one of the most important to understand in trading, as it underscores the importance of protecting one's trading capital, as it shows the difficulty of coming back from a loss in relation to the ease of taking a loss. It is also most traders lack of understanding of this concept that causes them to take risks which are way to large and is a major contributor to the high failure rate among traders.

That's our lesson for today, in tomorrow's lesson we are going to talk about how to design a plan before entering a trade or managing the position in case it starts to move against you so we hope to see you in that lesson.

As always if you have any questions or comments please feel free to leave them in the comments section below so we can all learn to trade together, and good luck with your trading!

Category:

Howto & Style

Tags:

• howto
• trade
• psychology
• of
• trading
• daytrade
• investing
• money
• finance
• business
• forex
• futures
• stock
• market
• informedtrades

[Shenzi187]

Dave, thankyou ever so much for your wonderful videos. You are a hype free alternative to the horrible 'education' which is going on out there.

I shall be referring you to my trader friends!

Be well

[InformedTrades]

Hi Shenzi187, Thanks for the comment and for watching I am glad you like the videos. Best Regards, Dave

[Schweizer135]

Please cover STOPS relating to gap downs.

Good vids! Thanks.

[InformedTrades]

Hi Schweizer135, Thanks for the comment. I am going to be covering stops and order entry in general in coming videos. What specifically did you want to know about stops relating to gaps in the market so I can make sure that is covered. Best Regards, Dave

[FreeFOREXautoROBOT]

Thanks for nice video!

I like Forex Robot

I have great results.

[girlie347]

that story of 100% needed to win to gain a lost 50% is meaningless blabla.

You can fascinate teens in highschool with such meaningless trivia that looks cool, their limited brain gets all worked up about it.

But a real trader wants to hear some real stuff. This video was a waste of time.

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[haribaskar05]

Hello David.. Been learning a lot from your videos. Amazing. Thanks a lot..

I started trading a little before i started watching your videos, unfortunately :(

The exact same thing has happened to me, lost 50% of the capital.

Now the more i try to make back the money the more i lose. I am lost and really dont know what to do.. Please guide me.

[008maguire]

Don't trade multipul stocks or currencies, trade one stock or one currency over and over and over again get to know the item your trading....this is what successful traders do

[steventkt1]

not at all, that only happens if the markets/economies where never growing

[noname1233211]

wuite low intelligence level on this clip. feels like i´v been fooled learning easy things before that felt hard like in this one. since this is really easy and still going really slow :P but dont think so, really love your work however!

[sharkmad7]

Thanks Dave, really good work