Know Yourself

If you start sweating when you watch the price swings of a product You have invested in, you either have the wrong trading concept, are in The wrong products or your positions are too big.

Keep Your Ego Aside

The biggest losses happen after investors make their first big profits. If you accumulate profits with a proven, tested investment strategy, You can pride yourself on its success.

However, if you make profits without an investment strategy, you May lose not only all your profits but your total investment. Unexpected Price moves do not have to mean big losses; they occur because Investors work with the wrong trading concept.

Hoping and Praying Do Not Guarantee Success

Many traders keep repeating the same mistake: They take small profits And let the losses run. The main reason to work systematically With an investment concept is to get the best average performance. This requires placing a stop-loss with every trading position and calculating The profit target when opening a position.

Hoping that losses will become profits by waiting a “little bit Longer” is gambling. It might be appropriate once in a while, but in The long run, it ruins every account.

Investors Must Learn to Live with Losses

It is easy to enjoy profits, but everyone hates losses. A market price that Drops below the entry price is not the only reason for a loss. If a position With a 100 percent profit is liquidated at the entry price, this is Also a big loss in the account, although it may not seem as damaging.

Never Double Your Losses

Dollar-cost averaging is one of the best strategies for investors if they Execute it systematically as part of a long-term strategy. Almost all huge bankruptcies in trading companies worldwide Happened because they doubled up losing positions. Hoping to recover Losses through additional leverage never works unless someone is really lucky.

Know Your Pain Level

Investors create their biggest problems when they change their investment Strategy without sufficient reason. The trouble begins when Traders jump from one trading strategy to another to follow the short- Term sentiment, mainly because a product seems to have changed.

Each investment strategy has its advantages and disadvantages. Someone who has expertise in picking stocks should continue to use This approach, despite the risk of big drawdowns. A perfect trading concept Does not exist, unless someone has discovered a niche product and Keeps quiet. At the same moment that this niche market becomes common Knowledge, the profit potential disappears.

Each investment strategy has a predetermined pain level that investors Can identify. It is important to know this pain level before executing An investment strategy.

Diversify the Risk

No matter how promising the future of a product may seem, diversify The risk. Many traders profitably trade the same product every day and Are especially successful in intraday trading. But these traders are disciplined And have specific product knowledge that is not available to most people.

In general, diversifying the risk with a systematic trading approach Will result in a much more stable equity curve than investing In a single product.

Making Money by Trading Is Hard Labor

Many people believe that that it is easy to make money by investing in stocks, bonds, stock index futures, or commodities.

The opposite is true. Investors who show quick profits through trading either have inside information or are remarkably lucky. Average investors have neither of these advantages.

All traders must develop a personal profile of risk preference and find a systematic trading style that fits the profile. Then they have to execute it. Months or years of systematic trading may be necessary before real-time trading results confirm that the trading concept works.

Intuition versus Execution of a Tested Trading Concept

All of the information that comes over the tickers, from newsletters, and through the Internet is already old when we receive it. There will always be someone with faster access who can take advantage of that information. Speculating with this “old” information is dangerous.

Trading concepts that have been tested and have good historical track records on paper provide valid information only if the advisor is willing to share how the trading concept works.

Real-time trading records are only reliable if market behavior does not change. Many of the successful fund managers in the 1980s did less well in the 1990s because the market patterns were very different. Investors must be highly skilled to identify trading concepts that did not perform well in the past but will perform well in the future.