Eye on the Percentages

When starting out as a new trader, most are starry eyed at the thought of huge profits from their trading. However focusing on the P&L tends to be a game that is better spent elsewhere. Remember, the stock and Mr Market do not care how much you are up or down in a position. When you have $1,000 in your account making $10,000 seems impossible, or if you have $100,000 in your account making $1,000,000 might also seem impossible. However what is more important are the percentages you are taking out of the market day in and day out. There are certain names that might take a week to make 10% and others that might take a year. That is why we focus on the percentages. If you are continuously locking in percentages, the money tends to follow in time. 

Name selection is key, there are trades we put on in slow movers like XOM where if we can squeeze 10% it might be a slam dunk where our risk might be half a percent, while in a high fly $30 biotech, we might be risking $1 or 3% to make 30% in a few days. You learn this by getting familiar with your name selection and learning how names trade. You learn this by trading them, we can sit here and tell you that names like BAC don't move compared to the leaders (expensive) bank names in the same space but you won’t know this until you actually trade them. The lighter you are in each trade (less money) will be more beneficial as you start. Most new traders want to bet the house on their first trade, when it's the complete opposite. Let's say you bomb your first trade, let's take a look at what it would take to make back the damage you lost.


The reason why we focus on swing trades is that the risk we put on in each trade can’t even fit on this diagram. Our worst ideas that fail tend to fall in the 5% category unless we get caught in a gap down, while most new traders tend to start on the bottom of this chart, where they are willing to lose 50%+ to make a few dollars. 

Think of anything you excel at, you more than likely sucked at it day 1, trading is no different. For some reason new traders enter the market as if they are Floyd Mayweather, yet have never put on a pair of gloves before or have even practiced! Remember to focus on the percentages, risk 1, 2, 3% and aim to make 5, 6, 7% and after you make 5%, aim to make 6% in the next trade, so on and so forth. You have to build up to the big winners, hit a few singles and doubles first.

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