Importance of Trade Management
Do you know that even though a group of traders buy the same stocks or options at the same time, some of them may become millionaires over time and some of them simply go broke?
All things equal, the most important factor that determines if you would become a millionaire (or billionaire?) or a complete loser over time trading in the stock markets is not how accurately you can pick stocks but how you manage your trades! Yes, portfolio management, or on a more micro scale, trade management, is the only factor that determines whether you make it or not in the stock markets!
Trade Management Example
John and Peter are 2 stock traders who agreed at the same time that XYZ company stock is bullish and decided to buy XYZ stocks together.
XYZ is trading at $10. John and Peter have $1000 each. John decided to put all his money into XYZ stocks and bought 100 shares of XYZ stocks. Peter decided to stick to his trade management strategy of using no more than 30% of his equity into any one trade. Peter then bought 30 shares of XYZ stocks.
As it turned out, stocks that are expected to go up usually come straight down....
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