INVEST, BE WRONG, AND MAKE MONEY IN THE STOCK MARKET

INVEST, BE WRONG, AND MAKE MONEY
IN THE STOCK MARKET
by AL THOMAS

I have been trading for several decadesand was an exchange member and floor trader for 17 years. You learn fast there or you go broke in a
hurry. As you can see I managed to hold my own for a few years until I found the secret and started to become a successful trader. Every professional trader I know knows the one great
secret and that is to keep your losses small.
We all learned that when we took a position – either long or short – that we better be able to jump out if the trade was not going our way.
Many of my friends were scalpers. That means they were trading for just a few ticks and every night went home flat. Flat is no positions at all.
Others, myself included, took a longer look and planned to hold a position for a period of time.
That could be several days or weeks. If you were right the longer you held on the more money you would make.
The general public seems think that exchange members know everything and always made money.Tain’t so. Many traders were wrong more than
50% of the time. Huh? Yes, fifty percent. My account had losses 40% of the time and 20% were scratch
trades (neither winners nor losers).
You ask, “If you are out of the money 60% of your trades how can you make money?” This is what every professional knows: Keep your losses
small and let your profits run. How many times have you heard that one? BUT how many times have you ignored that rule?
At the end of the year when you
analyze your trades you find that you made $3.00 for each $1.00 you lost you will show a nice big profit.
I don’t care what business you are in you don’t put your whole wad on a single outcome and stick with it until it either works or go broke.
That is what brokers and mutual fund managers want you to do. They want you to buy, but never sell.
It is a tragedy for the small
investor today that mutual fund families are putting in selling restrictions to discourage investors from dumping funds that are headed down. Many require long holding periods and if you sell prior to that time they charge an extra fee of 2%. They give lame excuses that I know are not true for doing this. Never buy any fund or trade with any brokerage company that has that kind of rule.
It is cheaper to pay the 2% or whatever fee there is and get out than hang around and lose 20% to 40% of your equity. Look back at 2000 to 2003. This can happen again despite what your
broker tells you.
Be wrong and run home with most of
your money. You still have enough to invest in a better opportunity. If you are disciplined to get out of any bad situation early you will end up a
rich person.