Losing Money In The Share Market, With A Smile
By Dave McLachlan
This article is all about losing money. “What’s that?” I hear you ask. “Dave’s finally lost the plot!  He’s supposed to be showing ways to make money in the share market, not lose it!” Yes indeed, but if you are a trader or investor this is one piece of information you do not want to trade without.
If there is one thing true of any profession it is that some days will be winners, and some will be losers. If you’re good at what you do, your winning days will be more (or bigger) than your losing days.  And this is especially true of trading.
But herein lies one of the real keys to trading success – most traders have absolutely no idea how many losing trades they might have in a row, and even less are actually prepared for when it happens.
So that is what I am going to show you now. Based on your win percentage or probability (if you don’t know what that is, best go and find out now!), how many losing trades you might have based on mathematical probability. That’s right, good ol’ trusty maths (but don’t worry, it’s all done for you).
To show you more I will need the skills of legendary Australian trader Nick Radge, who has some of the best models I’ve seen on what to expect in your trading. I absolutely love what Nick does, if you want to check him out he is at www.thechartist.com.au . But for now quickly check out the chart below (like I said, it’s all done for you):
|
Win % |
Probable Streak |
| Â | Â |
|
30% |
30 |
|
35% |
25 |
|
40% |
21 |
|
45% |
18 |
|
50% |
16 |
|
60% |
12 |
|
70% |
9 |
|
80% |
7 |
|
90% |
5 |
As you can see – with a 50% win percentage, you can expect at some point in your trading career to have a 16 trade losing streak. And considering some of the best fund managers out there have no better than a 50% win percentage, this is something we all need to be aware of.
Yes, for the canny amongst you this also means you could have a 16 trade winning streak, but my guess is that the losing streak will affect your psychology much more than 16 possible wins.
So what does this mean for you?Â
Simply – be ready. Ready for when the losing streak comes, because it will, and so you can still have the courage to pull the trigger on your trading plan and make the next trade. It also means make sure you are risking the right amount: this could be 2% or it could be 1% or less, depending on your method.  The last thing you want is to have created so much pain for yourself in the markets that you cannot bring yourself to trade again – and thus miss out on the great gains when they do come.
More than this – less stress and a mentally stronger way to trade equals a calmer home life and more profits, and these two things make me happy!
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March 18, 2010
Tags: ASX, losing money, losing streak, nick radge, share market, win percentage Posted in: Articles On Building Wealth
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