Whats up Lazytraders?
Have you ever wondered why 90% in trading burn through their accounts and feel miserable?
Well, they must do certain things to set them self up for losing without even knowing it. Thats mainly because so called trading educators misinterpret information knowingly to boost sales commissions and make themselves and the brokerages rich.
One reason why 90% of traders fail is the fact that they play too big too early and thats what this article is about.
Here we go!
To make this topic make sense we have to make an assumption here.
You`re probably not a consistently profitable Trader yet, if that were the case you wouldnt be reading this right now. Now that we have that out our way we can start thinking about Position Sizing.
TECHNICALS
Lets say you start your first day as a Retail Trader and want to make some money. Your first instinct would be to play as big as possible as fast as possible because you have the wrong idea about trading. Most of the beginners think you can get rich pretty quick. That is further from the truth than water to poor africans. You have to be consistently profitable to be able to get money. Otherwise you wont keep the money even if you made gains.
Let me just walk you through the numbers now. Lets say you have 10.000USD to your name you start by risking 50% and suddenly you lose it. Thats a pretty obvious possibility because you dont know what you`re doing yet. Just think about how much you have to gain now to make your money back. 100% yes you heard it right 100% not 50%. Your basis just got smaller by half which leaves you with 5000USD. To make 5 grand back you have to gain 100% just to be where you started. Thats a mistake a lot of people make because they play with crazy numbers in their heads thinking about how they can get rich as quick as possible. And not just that you will turn into a madman as soon as the trade just goes a little bit against which leads us to the next point.
PSYCHOLOGY
Dont you think that having 5000USD on the line with just 10 grand to your name wont fuck you up big time mentally. You will watch every damn move the stock, coin, derivate and so on will make and tremble like a crack junkie. You will be so messed up in the head that you will have an emotional rollercoaster from extremely euphoric to extremely miserable. You will sweat like a whore in church and live 5 life times in 5 minutes.
Now think about just having 100USD on the line. Wouldnt that make you feel a lot more comfortable. Couldnt you then just go about your life and see how the trade plays out? Of course you could and you know it.
Alone from this standpoint of your mental well-being its worth to consider smaller position sizes. You now really have the chance to see what the market has to offer and learn your stuff. This gives you plenty time with just 1% risk per trade. You would have to lose a 100 times in a row to burn through 10000USD but thats extreeeeeeemely unlikely even if you flipped a coin and decided from that flip whether you go long or short. These rules are set for a reason and i hope you know why by now.
I hope you find this article helpful and if you do so just let me know in the comments below.
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- Lazytrades
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