The Suit Story
Most professional traders will tell you that trading the financial markets is completely different to any other business. Although this is basically true, if you look a little closer you can find some similarities to trading and a traditional business.
For example, let’s take a traditional retail business such as a clothing store. The owner stocks the men’s suits in three colours – grey, blue and brown. The grey suits are quickly sold out, the blue suits are half sold and the brown suits have not sold at all. What should he do?
Does he go to his buyer and say “The grey suits are all sold out. Nobody seems to want the brown suits but I still think they are good and anyway, brown is my favourite colour, so let’s buy some more brown suits anyway”?
No, of course not.
The clever shopkeeper who survives in the retail business eyes this predicament objectively and says, “I’ve made a mistake. I’d better get rid of the brown suits. I’ll mark them down 15%. Let’s have a sale. And if they don’t go at that price I’ll mark them down to 20%, then 25%. (i.e. cutting his losses) I’ll get my money out of the brown suits and invest it into the fast moving grey suits that are in demand. (i.e. adding to a winning position)
The above scenario is common sense in a retail business. The same principle can be applied to trading.
When I first started trading I read many books, subscribed to courses and attended numerous seminars on the subject. Whether it was shares, indices, commodities or forex I was pretty much led to believe that if I followed certain strategies my path to wealth was assured.
Armed with my new found knowledge I set to work, scouring the markets for opportunities to profit. It didn't take long to realise that financial spread trading was going to be much more difficult than it looked.
All the charts I had studied showing beautiful trends that resulted in substantial winning trades suddenly appeared few and far between. In reality, I was faced with false break-outs, whip-saw and regularly being stopped out for loss. What was I doing wrong?
I stopped trading and decided to search for the answer that ironically was in front of me all the time. I came across a home study course developed by multi-millionaire trader Vince Stanzione and immediately I was struck by his honesty.
He explained that 6 out of 10 trades would either be losers or make no significant gain. Was this guy crazy? How was I going to make any money if 6 trades out of 10 were losers. I contacted his helpline and he repeated this fact. There would be lots of losing trades. The secret was to cut these losing trades short and allow the trades that developed in to winners to run as long as possible. That way, over the long run, the profits from the winning trades would outweigh the losers.
In my opinion, to understand this concept is absolutely essential to your success at trading.
Winning By Losing More Than Half Your Trades!
Armed with my new found knowledge I set to work, scouring the markets for opportunities to profit. It didn't take long to realise that financial spread trading was going to be much more difficult than it looked.
All the charts I had studied showing beautiful trends that resulted in substantial winning trades suddenly appeared few and far between. In reality, I was faced with false break-outs, whip-saw and regularly being stopped out for loss. What was I doing wrong?
I stopped trading and decided to search for the answer that ironically was in front of me all the time. I came across a home study course developed by multi-millionaire trader Vince Stanzione and immediately I was struck by his honesty.
He explained that 6 out of 10 trades would either be losers or make no significant gain. Was this guy crazy? How was I going to make any money if 6 trades out of 10 were losers. I contacted his helpline and he repeated this fact. There would be lots of losing trades. The secret was to cut these losing trades short and allow the trades that developed in to winners to run as long as possible. That way, over the long run, the profits from the winning trades would outweigh the losers.
In my opinion, to understand this concept is absolutely essential to your success at trading.