The Only Way to Get Rich Trading

By far the most interesting common sense reading for robot traders this weekend:

[url]http://www.moneyshow.com/trading/article/32/DAYTRADERS-25582/The-Only-Way-to-Get-Rich-Trading/[/url]

Billy

Billy,

Whittling away profits from the late September/early October robot trades during November proved to me the importance of the insights presented in the article. But these insights were known by me as I made many mistakes.

Knowing the axiom but acting contrary to it is a condition that probably ruins the chances of many people. For me, it was your recent discussion of leverage management in this forum against the backdrop of my personal failures that has made the greatest difference.

The problem rests with a single fact: While we are following well programmed robots, we are ourselves not robots. A 70% success rate over the course of a year is fantastic, of course. But should the 30% of losers occur while one is beginning, it would be difficult for any human to continue. Moreover, if a bad robot trade cannot be managed to minimize damage, we are not being human-- insofar as we are not reacting to events that our robots, as presently designed, cannot compute.

During one recent bad robot trade, I took a nap during trading hours to avoid watching what I reasoned would be a likely horror show. I awoke to find a mess of a loss, and I found on this web site that others, alerted to the money flow, had exited the trade. Via my nap during trading hours, I was trying to sacrifice my human capacity to respond in order to ride the bronco as a true trend follower.

Why am I concerned with leveraged positions? Leverage does provide us with the power to accumulate capital with greater acceleration while containing losses. My point is that while "get rich slowly" certainly makes sense, the robot and creative use of leverage allows the trader to get rich slowly a lot faster.

For these reasons, I am very grateful that you have shared insight into leverage management. I believe this is as crucial to us wet ware beings as is self control.

Many thanks,

Hi Nickola,

I believe the solution is to scale into any new system one is trading. In position sizing there is the account risk parameter. By starting out on the low end of this parameter and increase it step by step as the system delivers profits one can avoid potentially significant account drawdowns at the start.

I don't have any experience doing it but getting rich trading seems to be all about having one ore more systems/trading methods with an edge, scaling them up using proper risk management and compounding the returns.

Regards,
Rembert

Forget about getting rich (in the monetary way at least).

It is not important -

You have your knot -- and will need to make x% per year to

a. pay the bills, and
b. make it worthwhile to be involved in this profession

x% is different for all of us.

Divide the goal by 8 and use that as your monthly goal.

An average year should be aprox 10 months of success, 2 months in which you give back two months. This will still lead to 8 monthly profits.


And for richness -- maybe reconnect with your spiritual path.

Sorry for be so staccato, but it is late and I have no inspiration for more fluent paragraphs

Ernst

Nothing wrong with richness as a goal I believe. Money is what makes this world go round and we all want it for different reasons. Some want 2 yachts, 4 Ferrari's and a house in Monaco. Some want freedom to travel the world. Some want to help people in need. Some want to buy influence etc.

[QUOTE=Rembert;19429]Nothing wrong with richness as a goal I believe. Money is what makes this world go round and we all want it for different reasons. Some want 2 yachts, 4 Ferrari's and a house in Monaco. Some want freedom to travel the world. Some want to help people in need. Some want to buy influence etc.[/QUOTE]

Rembert - I don't know at what level you play our game; but for me a goal of richness would distract from my daily decisions.

Look at every sport -- take golf for instance the moment you try to hit it very hard and far, it goes out. It is only when you hit relaxed and play at your own level that you get good results.

Not having a J.ob. and a b.o.s.s.; being free from money worries because you make enough is that already a great foundation for feeling happy.

Ernst

Hi Ernst,

No doubt you are very clever and adroit handling options, but I must ask: Is it not impossible for a robot trader to expect and average monthly income?

We may only realize a few chances every year to really make our money. At those points, we must be a tough guy, like Morales or Billy, and take the big swing, no?

To try optimize returns on a month by month basis would seem to be the luxury of options hands.

And a question: Can one sell puts against one's short position?

Yours,

Nick,

You are right -- if you would only trade the robot then the even distribution would not work.

But I think most of us, don't have Billy's discipline and only trade robot calls. I suspect most of us (me included) will enter other trades. And I have to admit - when the though of richness enters my mind - most of the time I will have the biggest loser of the year on my hand.

With your background you have some unique insight in the human mind. You could probably lecture us on how inaccurate the mind is as tool for unemotional decision making.

And yes, you could short puts on short stock.

Don't get me wrong, I agree that trying to force things will only backfire. I have a very very very relax trading style. And I have a day job so I don't have to worry about market gains paying bills.

That being said, my goal in the stockmarket is to make as much money as possible. One can only work a certain amount of hours in a day. To get rich you need a scalable business. And there's no business as scalable as trading the markets.

Ernst,

The human mind is very puzzling to me and many others, regardless of our credentials. I can write that I'm even puzzled by my own. Six months ago I knew the robot was the right route, but only now I have put this into practice.

So, from theory to practice, I know the human mind is often confused (the night of the soul, as G.W.F. Hegel put it) but in need of certainty ([I]cogito ergo sum[/I] or, in the vernacular of the time,[I] Je pense donc je suis[/I], René Descartes).

The market is confusing; the robot does not provide certainty, only the probability of a given outcome, much like options. Unfortunately, as you agree, we cannot know when to put on a trade until the robot dictates nor can we know its success until it concludes.

Perhaps you could shine the light on selling puts to hedge a short position?