A little warning to you… This essay is probably a waste of your time.
That is, unless, you’re interested to know the secret to staying safe from making wrong investment and trading decisions.
This little secret is only 5 magic words, and you can apply it to anything: from trading the markets, real estate, business and long term investing.
The great trader, Lewis Borsellino, once said that he stuck a note on his computer screen so that he could see it and read it all the time.
The note said this: “Today you are going to lose, and lose big!”.
Some people would consider this type of action as negative thinking and unhealthy. But Borsellino said that it protected him from losing too much money.
The truth is that when it comes to money and investing, all that “positive thinking” mumbo-jumbo that books and “gurus” talk about is irrelevant. In fact, it is dangerous.
“Hoping” that things will just work out is never a strategy.
So here are the 5 magic words that will keep you safe…
Before entering any trade or investment, always ask yourself this question:
“How much can I lose?”.
It is simple and obvious, but you would be surprised how very few people do this.
Most people tend to only think about rewards and very little about risks. As a result they fool themselves into a false sense of security about their investments and trades.
Never become too confident about any trade or investment. If you do, you will lose sight of this fact: that the trade or investment may not work out as you had planned.
The markets do not care about our plans or intentions. They don’t care how much time you have spent analysing your trade.
There is an old saying that says: “Do not fall in love with your stocks. They won’t fall in love with you!”.
So the next time you enter into any trade or investment, sit down and ask yourself this question: If the worse should happen, how much can you lose?
If the answer to that question is a figure that exposes you to too much risk, then you need to do two things:
1) Either reduce your position size (e.g. cut down the number of shares, contracts or dollars-per-point you were planning to trade); or…
2) Stay out of the trade or investment completely.
You need to develop an unshakeable belief in the “probability” nature of markets. There are no certainties in the markets – only probabilities.
The same applies to other investments, be it real estate, commodities or a business.
Therefore, respect for the 5 magic words will show respect for risk and probability. This will ultimately keep you safe.
For more helpful articles and videos on trading the markets, join our trading community on www.leadingtrader.com.