Trader's Survival Guide

It’s not only about picking up good stocks at the right price and the right time, it also involves minimizing your losses.  Even, I think minimizing your losses is the top agenda of a trader.  So, using margin in learning is totally unacceptable because it maximize your potential loss greatly.  I know, it also doubles your potential income, but don’t put the cart in front of the horse.  Minimize losses first, taking and preserving gains second.  The only time you should use margin is when your trades is all in the safe zone (above break even).

The funny thing is that the risk is not inherent in the investment that is big, but the risk in the INVESTOR.  With 80% chance of winning, if you always bet 200% of your Capital and risk 10% of it in a trade, well, in the not-so-long run, you’ll be wiped out.

So, knowing when enough is enough is much better than hoping for an instant millionaire streak.  At the beginning of each month, set a target to yourself.  For instance, I want to get 8% return monthly.  I’ve gotten 10% return in each of the last two months.  Lucky I guess.  So after that, I take low-risk approach, meaning I’m in the market, but I don’t put my money in high-risk investments.  Always watch the market, even if you’re not trading.  Low-risk investments is essential.  You want to spot it as soon as it is available.  If you trade along with the trend, sooner or later, the wind will be in your side, just remember to take your profit while it’s still there, and run away when things do not seems right.

Put a maximum loss stop.  Maximum of six percent per month and  two percent per trade is good enough, but try to lower it.  And never do revenge trading (no doubling-up after a loss), and no average down.  Average in is okay as long as you know what you’re doing.

And stick with your guns.  No trader should put their losing trades into “long term investment”.  Cut loss!  The first loss is the best.

So, after I loss six percent (but never experience that), what will I do?  Quit trading and paper trade for the remaining month.  When the month is over, I’m 94% cash, unlike any other trader that has only 50%-60% because their stocks stuck somewhere above.

After I win, what should I do?  Go treat yourself!  And continue trading with even lower-risk approach.