The most important part of trading is to make money

I was over at Ickos' Alsi-Trader blog and came across a pretty recent post from him about "Becoming a better trader".

One of the comments that he made was: "To become a profitable trader one must invest time. First on to do list is to read as many books as one can."

My personal opinion is that this idea of becoming a good, better, best trader is questionable at the best of times and the one thing that is more important than reading books is to make a profit and retain it!

Simple example - a trader starts with R1000 - he makes a 15% profit - what does he do with that profit?

A) Bank it and trade up with R1150 next time?
B) Put the profit in the bank?
C) Invest the profits in an index tracker or a blue chip share?
D) Put their profits into their bond and settle debt / grow other asset classes?

To me, knowing how you are going to protect your profits is something only you can learn and decide and too often it is left till last in order of importance while traders pursue larny systems.

I'm a big believer that many traders spend way too much devising, back-testing and developing systems and spend far too little time working out how they are going to protect

How many traders are cussing and cursing that they were stopped out of long gold trades on Friday? (Or will be on Monday). I am pretty sure that few people or systems could fault you being long gold until WHAM! that jobs number comes out and you are blown out the water.

(Yes you should remember the rule that it is dangerous to trade around data but if that were the case then most of you would be out the market 75% of the time.)

No trading system in the world is going to protect you from random events (9/11 for example or a "whopping" jobs number) - but you can certainly protect yourself by making sure you know what you are going to do with your profits as you make them.

THE POINT OF TRADING IS TO MAKE MONEY - IF YOU DON'T KNOW WHAT THE SCORE IS THEN YOU'RE A GAMBLER.

Saturday mumblings

I haven't posted in a while but I've got a couple of observations around trading, wealth management and strategy that have occurred to me which I thought I would stick up here on the blog and see if others had some thoughts.

Trade vs. buy-and-hold
I know many traders turn up their noses at old fashioned buy and hold strategies (not "hold and hope" stuff - quality buy and hold). I was looking at the performance of my two respective portfolios since September 2008 and interestingly my buy and hold (wealth) portfolio has outperformed my day-trading portfolio.

I found that quite interesting considering the volatility in the market at the moment.

Does it mean I am a kak trader? The record says I've made consistent money day-trading so I'd like to think I have some skills but I think it does show that a consistent system aimed at wealth and money management will trump short term trading gains.

Trading personality
Have you ever done a personality test? Do you think there is room for one in your trading strategy?

A mate of mine took this What's Stopping You test run by Global Trader and it came out with some interesting results.

The evaluation basically tests some of your knowledge about financial products and your risk profile which is all good and well. Most interestingly for me - the test looked at his personality and it discovered something of an impulsive streak in him. It's something I agree with and something I've also seen in my own trading. Sometimes you find yourself constantly looking for positions to trade or you find yourself picking out a quick and easy "punt".

In his case, I have regularly seen him drop money when it wasn't necessary to take a position and the test actually highlighted for him a problem with his trading personality. If he wants to punt, he can do it on the horses.

Point being that he was made to think about what he was doing and hopefully it improves his trading strategy.

Nothing wrong with asking an expert
I think there are quite a few traders who want to "do it their way".

By following advice from other traders they feel like they are cheating a bit. I haven't traded much recently and when I have it has been very haphazardly and not been good for the wallet.

I stepped back and took one of the recommended "house" views from one of my service providers and BOOM I was back on the scoreboard within 6 hours.

Sometimes you don't have to go against the grain to pick good positions.

Just some thoughts - use 'em don't use 'em....

Trading tip

Trade with a clear conscience - if you have to get up to 2am to check what your trade is doing then you shouldn`t be in the position in the first place...