The key to great trading

by gbsmith4

It’s ironic that you can watch 24 straight hours of business TV, plow through 30 books on trading, and subscribe to over 50 newsletters, and never come across the key to great trading.

So, here it is: good money management.  And by that I mean a consistent way to take profits and losses.  Really, it’s no more complicated than that, but I almost never hear a peep about it.

Which is sad, really, because almost ANY stock-picking scheme can be profitable if the money management is correct.

Now, what is “correct?”  There is just one simple formula that needs to be positive: (win% * profit/trade) – (loss% * loss/trade).

Now, if you know basic algebra, you know almost any combination of numbers can be plugged in to achieve a positive number.  You can have a large win%, but take small profits, or you can have big profits per trade, but win a very small percentage of the time.  But however you trade, just make sure that over time, that algorithm is positive.

And, that’s it.  Everything else about the market matters, of course, but nothing more so than the formula above.