Saturday, August 29, 2009

Risk vs return

Out of sheer curiousity - if I asked you to put R500 down for a R50 return would you do it?

What if I could do it 8 out of 10 times?

I can't make those promises so I am not going to try but I think it is quite interesting exercise to conduct in terms of trader mentality.

Personally I get the sense that a lot of traders would far rather hit one or two spectacular trades but don't keep score of their smaller losses which add up very quickly.

A lot of people have all of these questions about trading vs gambling - my personal opinion - trading is about building wealth. You build wealth by having a score card which reads more wins than losses and you preserve the capital that you generate.

Gambling involves going out and partying it up when you win well and complaining when you lose.

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