Trading

So, you've decided to part with some of your cash and invest it into trading stocks. Share trading is like a business. Your primary purpose is to make a profit. You're not a charity freely giving money back into the markets. Like any successful business formulating a business plan, successful traders also need to have a well thought out trading plan. Remember the traditional goal setting maxims: Goals should be SMART: Specific, Measureable, Attainable, Realistic, Timely.

There are many fools trading in the worldwide markets. Trading stocks, forex or commodities anyone can make these dumb trading mistakes. But to be a highly successful trader you must admit to your mistakes and act to fix your previous follies.

Trade Without a Plan

Two percent money management is very important especially when you are daytrading and actively trading the markets. Lets take a look at a tale of two traders with this table. You must apply the two percent rule with due diligence: that’s two percent or die. Examine the case study table below:

There is a book out there about "Random Walk Theory". I haven’t read anything about it but I would presume that the book would shoot down any prospect of a predictable market theorem.

In the stockmarket, for every trade that is buyer and a seller. In a theoretical, highly efficient market: if the seller puts in $50 into the market – the buyer would also take out $50. But we've been told a lie. Trading is a minus sum game. In reality, the seller would be really selling $45 worth and the buyer, gets $45 worth of stock. So where does the $10 ($5 + $5 on both sides) go?

Jerome Kerviel. Rogue Trader. As this case unfolds, more and more information is being revealed. He was the quiet guy with a not-so-impressive education background. Many of his peers may have been picked from the prestigious Grandes Ecoles, the Harvards and M.I.T.'s of France, and wielded advanced degrees in math or engineering. Kerviel came to work with a business school background and started work in the bank in the back office. Can we learn a valuable lesson from this case?

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