Trading can be a very rewarding profession which can unlock the door to great riches. Returns in stock market both through trading and investing can be astronomical. It’s these high return that draws many people to stock market. But of course, the stock market is the place where you’ll find both rags to riches stories and riches to rag stories.
There are many great things about the market, one of them is that there is no bad debt in the market. What you have earned you’ll definitely receive, the exchange will take care of that. So, in that sense its the best business. There is no other business in the world where bad debt won’t be there. However, in the stock market, you don’t need to have provision for bad debt. It’s simply not required.
Also, this is a place no matter how much time you have spent in the market, nobody will let you trade if you have no money. There is no Goodwill here. Unless you have money in the bank you won’t be allowed to trade. So, this underlines the fact that capital preservation should be our number one priority. if you lose all your capital then its the end of the road for you as a trader and investor.
As you keep losing the capital staying in the game becomes more difficult with each passing day. Picture this if you lose 10% of your capital in order to recoup the losses you now need 11% return on your remaining capital. If you lose 20% then you need 25% return on your remaining capital, If lose 30% then 43% return is needed and if you lose 50% then 100% return is required just to recover your capital. So, with every loss, your dream of making it big in the stock market gets further and further away. And a day comes when you have to give up on your dream. You must look preserving the capital first then look to earn the return on it. If you learn to preserve your capital then return will eventually come. The trick is not to lose too much capital.
Analyze risk more than you analyzing profit will go a long way in helping you keep your capital from slowing slipping away. You never know how far you are from that one big losing trade. Morphing your position when the trade goes bad can help you preserve your capital. There are means and ways to do that. So when you are wrong about the market trend you learn how not to lose the capital and when you are right you earn. In all our training programs and even in our own trading, our focus is more on losing capital than earning a return on capital. Once you master this there is no stopping you from achieving your dreams.