Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
The Three M's of Hyperinflation : Milosevic, Mugabe, And Maduro - 26th May 19
Global Multi-Market / Asset Charts Review - 26th May 19
An Oil Shock Could Be the Black Swan That Finally Drives Gold Higher - 26th May 19
Brexit Party Forces Theresa May to Resign, Boris Johnson Next Tory Prime Minister? - 26th May 19
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

The “Getting Rich” Lesson I Learned on the Trading Floor in Chicago

InvestorEducation / Learn to Trade Aug 05, 2015 - 09:12 PM GMT

By: ...

InvestorEducation

MoneyMorning.com Shah Gilani writes: Back in early 1982, I was a clerk for a big market maker on the floor of the Chicago Board of Options Exchange (CBOE). A year later, I had a seat on the exchange, was a market maker and was running a hedge fund.

My first day of trading – for my account – was a disaster.

There was a “fast market” in FedEx Corp. (NYSE: FDX), which means the pit was crowded with traders yelling and screaming, buying and selling options based on an unexpectedly positive earnings report that had just come out. I rushed into the crowd and amassed a position.


I walked back to my booth on the floor, right next to the Salomon Brothers booth, where Norman – the investment bank’s head trader, and without a doubt the smartest guy on the floor – asked what I’d done. I told him I got “long” a bunch of calls.

Norman quickly shot back: “What’s your exit?”

Of course, I hadn’t given that a second’s thought. I was too excited about getting into the position.

Just a few minutes later, a news story said the earlier earnings report was wrong – and that FedEx had actually lost money that quarter.

I lost $30,000 in a Chicago minute.

It took me a week to make that money back, but that’s how I “earned” the first of five trading rules that are the key to getting rich.

These aren’t made-up rules. I earned and learned them from experiences just like this one.

And today I’m going to share these five rules with you…

Five Steps to Riches

One reason most investors fail to become wealthy is that they don’t understand the single most important premise of investing.

It’s not the buying – the getting into trades or investments – that makes you money.

It’s selling to cut losses, selling to ring the cash register or selling because you’re buying a jet with your winnings that matters.

Maximizing your wealth is about managing your positions – it’s about trade management after you’ve put on your positions.

Here are the five rules I always follow that will guide you.

Rule No. 1: At First, You’re a Trader

Every time you put on a new position, it’s a trade – just a trade. You’re not an investor… yet.

If you think about it, that make a lot of sense. To become a wealthy investor, you have to start by putting on trades. If you manage your trades correctly – if they have the upside potential and you manage that potential correctly – your winning trades can grow into fabulously profitable investments.

It’s about duration. Not all trades evolve into investments. Some are losers… it happens. Some are just beautiful opportunities that net tons of money when you close them out.

So, think like a trader until your trades become investments. Then, think like an investor.

Rule No. 2: It’s a “Binary” World

If you’re like me, you engage in tons of analysis and preparation before you put on a new trade. But once you do – whether we’re talking long or short, in stocks, bonds, options or futures – one of two things is going to happen. Either the position goes in the direction you predicted. Or it goes against you.

If you adopt that simple “binary” mindset – understanding there are only two possible outcomes to think about – you’ll be comfortable making more trades. After everything you’ve done to analyze the opportunity, you’ll understand that the bottom line is the price either goes up or goes down.

If your trade-management strategy prepares you for either scenario, you’ll make a lot more money: With a trade-management plan, you won’t be hung up on being proved “right” immediately, even though being right – and right away – is the Holy Grail all traders seek.

Rule No. 3: Know Your “Pain Point”

Depending on your personal parameters – meaning how much capital you have, how much you feel you can lose on any one position and in your overall portfolio – you need to ask yourself a single question: How much can I afford to lose without becoming upset?

None of us likes to lose anything. But trading is a business, and businesses sometimes have to endure losses. (In fact, there’s an old maxim that says, if you’re not suffering any losses at all, then you’re probably not taking enough risk.)

The business of trading requires that you take small losses. At the end of the day, it’s not about how much you make – that always takes care of itself if you follow good trade-management rules – it’s about not letting losses distract you from growing your business. Know your “pain point” and make that your bailing-out point.

Rule No. 4: Understand Your Plan Before You Put in a Trade

Having a trade-management plan in place – meaning you intend to take certain actions at specific price levels – is the essence of successful trading and investing. The beauty of creating that plan is that, in order to pick the spots where you’ll take action, you must already have completed the analysis that led to those decisions.

No matter what your trade does – no matter which direction it heads – you’ll have a game plan detailing what you intend to do.

Rule No. 5: Cut Your Losses Short and Let Your Winners Run

It’s a simple rule, but few follow it. In fact, most individual investors do the exact opposite: They hang onto their losers, and let those losses mount in the vain hope the trades will turn around. And they take profits too quickly – then watch angrily as the trade they exited grows more and more profitable.

These mistakes harken back to rules 3 and 4: Such investors don’t know their pain threshold – and don’t have a plan.

When you get to your “pain point,” cut your losses short. Once you’re out, you’ll be able to reassess with a clear head.

Letting your winners run demands a plan. And that plan to manage winners should have short-, medium- and long-term outlooks. The short-term outlook is what’s happening to your position right out of the gate. What’s the position doing relative to your expectations, to your “pain point” and perhaps to peer investments?

The medium term is what you expect for the trade after you’ve traversed the short-term holding period. This is where a lot of individual investors lose their way. They panic because they’re afraid they’ll lose what they’ve gained over a short run and bail out. Or perhaps the trade seems to lose steam after generating a big short-term profit, so they bail out – only to find it was merely taking a breather and consolidating before it runs for new highs.

The long term is where your “trade” turns into an “investment.” You have to navigate that transition and then manage the position going forward.

In an upcoming column, I’ll expand on this trade-management planning strategy by showing you how to get ready for a trade.

I’ll use real examples and charts. And I’ll explain how to “find” levels to get in at and get out at, where to put your stop-loss orders, and when, where and how to raise or lower them.

And I’ll periodically bring you more of these strategy sessions – putting you on the path to wealth.

P.S. I hope you’re all liking and following me on Facebook and Twitter. Once you’re there, we’ll work together to uncover Wall Street’s latest debaucheries – and bank some market-smoking profits.

Source :http://www.wallstreetinsightsandindictments.com/2015/08/the-getting-rich-lesson-i-learned-on-the-trading-floor-in-chicago/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules