Ever bought into a stock right before it tanks?
Or perhaps you’ve sold out of a stock just before it goes on a massive rally. Like Nvidia, for example, which has tripled since the start of the year.
Chances are if you’ve been around the markets long enough, you’ve experienced both scenarios.
It sure can mess with your head and leave you totally frustrated.
Especially if you play out the trade over and over again in your mind.
But while you’re kicking yourself, you’re likely missing out on plenty of other trades.
Learning to put a line under a trade (whatever the result) and quickly move on is key to making it as a trader.
And it’s something I learned the hard way.
So today, I want to share how a shift in my approach to trading led to life-changing gains.
It ultimately saw me go on to great success, with Barron’s rating my hedge fund in the top 1% multiple times.
It also saw me featured in Jack Schwager’s Hedge Fund Market Wizards. I’m in the chapter right after billionaire Ray Dalio…
It’s Not About Big Wins
See, a common mistake new traders often fall into is thinking that trading is about bagging big gains.
And that’s the approach I took when I started out trading in the pits of the Chicago Board Options Exchange 40 years ago.
I’d jump from one trade to the next, making outsized bets that had little chance of succeeding.
No prizes for guessing how things panned out…
I tore right through my trading account multiple times over. And then I had to face the arduous task of starting again… and again.
What I didn’t appreciate at the time was that those big wins don’t come around often. For every Nvidia, countless other stocks do practically nothing at all.
The problem is that if you keep looking for the next big thing, you’ll miss other less exciting but still profitable trades.
The way I turned things around was to stop looking for big wins. Instead, I did the opposite…
I started treating trading as a business where I needed to bank regular gains.
Take Regular Profits… Whatever the Size
By taking regular profits, no matter how small, I got into the habit of trading profitably.
A regular $200 or $300 profit soon accumulated into something much bigger.
Before I knew it, I’d banked my first $1,000 winner… and I knew that I was on my way.
And whether my trade was profitable or a loser, I put a line under it and moved on to the next trade.
That way, I wasn’t holding on to profitable trades longer than I should have in the hope of unrealistic gains.
And I carefully chose my position sizing and risk management so no one loss could knock my feet out from under me.
Instead, I got into the business of regularly making money while capping losses.
Do this too, and it might surprise you how quickly things turn around.
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Stick to the Basics
Hunting for outsized wins might suit some traders…
But you don’t know how long it is until the next Nvidia comes along.
Unless you’ve got a massive account behind you, it’s too risky to trade that way.
I went into the market each day with the mentality that I was going to bank whatever gains I could. And my account slowly but steadily began to build.
The more profits I banked, the more I could allocate to my next trade. That helped snowball my account to something much larger.
If you treat trading as a business – and not a casino – you too will likely see your account steadily grow.
Remember that there are unlimited opportunities in the markets to make a profit.
What’s more, those opportunities are out there every day.
And if you can snag even a small number of them, you’ll be well on your way to trading success.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict