Warren Buffett and Bill Gates both agree that Charlie Munger is the most intelligent person they know.
Charlie Munger once said, “Problems frequently become easier to solve if you turn them around and reverse”.
Unless you are more gifted than Einstein, inversion will help you solve problems.
Now let’s use a little bit of inversion to solve your trading problems.
Statistics say that around 90% of traders lose money.
So what we have to do is ask what are 90% of these traders doing?
1. Traders buy breakouts and they sell breakdowns.
This literally means that they are chasing the stock price around.
2. They all try to cut their losses short and let their winners run.
Where are they letting their winners run to? Straight out of their trading account? This idea sounds great in theory but it just doesn’t work.
3. Their greed causes them to size their positions way too big.
Have you heard of the saying “don’t over-trade, focus on the best set up and increase your size on the good ones”.
Look:
There is some merit to increasing your trade size during periods of better opportunities but never overdo it or you will eventually you will be wiped out of the game!
4. They are afraid to reduce their cost basis because they might be capping their potential profits.
Remember: Unlimited profit potential is like a mythical creature.
Now that you are aware of these things that most traders do, you wonder why they keep on doing it?
Well, some of is human psychology but most of it is because some traders got their ideas from investment education websites.
It may sound hypocritical because you’re currently reading an investment education from this website but the difference is that others tell you what will make you spend money.
Think about it.
How appealing does “cut your losses small and let your winners run” sound?
Sure, it sounds great. Exactly what you want to hear but anyone teaching this concept has either never traded or they’re just flat-out lying.
Choose a brokerage that is known to offer professional education to those who ready to know more about forex and CFD trading techniques.
XM is one of the most trusted brands in this industry. This licensed forex broker is widely known for having a wealth of training and educational materials available on their website plus regular webinars online and seminars in key cities around the globe.
XM forex seminar 2019
Now, that doesn’t mean you have to have huge losses and tiny profits.
If you’re trading the right strategies, this shouldn’t even be an issue.
Let’s use a little bit of inversion and flip these points around and here’s your new trading strategy:
1. First, you’re going to buy into weakness and sell into strength.
Why?
Because it’s exactly the opposite of what most traders do!
Now you might be thinking, if you’re getting long into a sell-off, how do you know when the sell-off is over?
The answer is simple. You don’t and the fact is nobody does.
It doesn’t matter if you are Warren Buffet or Jimmy Buffet. You don’t know if a stock will go up, down, sideways or in circles.
Stock price swings are random for the most part but ultimately it’s human emotion that drives market movements.
Bottom line? Don’t fall victim to your emotions.
market price swings
2. Book your profits and be patient with your losing trades.
With a high-probability trading strategy, almost all losing trades will become a winning trade at some point if you hang in there.
If you’re cutting your losses small, you’re going to choke out a lot of good trades. And if you are trying to let your winners run, you will end up disappointed when your “winners” just don’t freaking run like they’re supposed to.
3. Keep your position sizes small.
It will allow you to make decisions based on logic rather than emotion.
The only way to be patient with positions is if you are sizing your positions correctly. If they are too big then the day-to-day fluctuations in your account balance will cause you to make bad decisions and acquire gray hair at a very young age!
You certainly don’t want to look older than your actual age, right?
4. Lastly, reduce your cost basis by placing trades with a defined profit strategy.
These are strategies with limited profit potential but they have a very high probability of success.
One more thing, if you are buying options, you are doing the exact opposite of reducing your cost basis.
By consistently reducing your cost basis, you will get paid far more than that “one home run” that you might hit.
If you swing for the scent, you’re probably going to strike out. Breaking in small profits over and over again is where you’ll hit a grand slam!
Try to follow these very simple trading guidelines and you will be able to save yourself from a lot of headaches and increase the probability of making profits in the long run.
