This is a must read for everyone who is into any form of trading be it stock, crypto etc. Trading as we all know is simple but not easy. Every trader always have that believe that they can make a difference and only end up just like any other trader out there that loses money on a regular basis. The bitter truth which almost everybody often sweep under the carpet is the fact that 90% of traders loses money to the market. What this simply means is that if you want to stand any chance of being among the 10% of traders that are successful, then you have to do the exact opposite of what 90% of traders does. Trading is not just about making profit, it also entails keeping the profit you’ve made. Most traders always find their selves making profit at the inception of trading but at the long run, they loses the profit they’v made to the market. Your greatest enemy as a trader is FEAR and GREED.
Now let’s make use of inversion to solve the problems of most traders. Since 90% of trader loses money to the market, using the inversion approach all we have to do is to figure out what these 90% does and try to do the opposite.
SO THE MILLION DOLLAR QUESTION IS: WHAT DOES 90% OF TRADERS DOES?
1. Firstly, they buy break outs and sell break downs: they do this because they literally chase the price of stock and coins, I call this jumping into the front of a moving knife.
2. Secondly, they cut their losses short and let their winners run: they do this forgetting that winning trades will eventually become losing trades at some point in time.
3. Greed causes them to size their position way too big: this is why I always advice traders only to trade and invest what you know you can afford to lose never take a loan to trade. Taking loans to trade is totally crazy! If you want to do something crazy, try using a Ferrari to jump from 3 story building into a casino or you go sky diving without a parachute lol!
4. They are afraid of reducing their cost basis because they are afraid they might be capping their potential gains: most unsuccessful traders do this 4 things highlighted above basically because of their human psychology i.e FEAR and GREED and in rear cases it’s streamlined to what they were taught in investment website. I know this sounds hypocritical but most of these investment education websites always tells you what will make you spend money, and how to get rich quick while hiding the truth from you.
NOW USING INVERSION TECHNIQUE TO FLIP THESE POINTS AROUND, HERE IS YOUR NEW TRADING STRATEGY.
1. First, you must learn how to buy into weakness and sell into strength. This is the exact opposite of what most unsuccessful traders do. Now the question is how will you know when the sell off is over, the gospel truth is, nobody knows. Not even Warren Buffet. You don’t know if the market is going to go up, down, sideways etc. obviously its human emotions that drives the market so don’t fall victim of your emotions.
2. Book your profits and be patient with your losing trades: with a high probability trading strategy, almost all losing trades will eventually become winning trades at some point in time. So if you cut your losses too small you might miss out of big moves its natural for you trades to be in a losing position initially. And if you let your winners run, you might end up getting disappointed when your winners don’t run as you earlier expected.
3. Keep your potential sizes small: this will give room for you to make logical decisions rather than emotional ones. The only way to be patient with your positions is if you sized your position correctly. When sizes are too big, then the day to day fluctuation will cause you to make bad decisions and you might end up acquiring grey/bald hair at a very young age.
4. Reducing your cost basis by placing trades with a defined profit strategy: these strategies with limited profit potentials but with a high probability of success.
Follow these simple guide lines and save yourself some headaches and frustrations.
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DISCLAIMER: I am not a financial adviser of any sort. So always do your homework before making any investment decisions. Thank you for reading and don’t forget to leave your opinions in the comment section.