By Nick Radge
Nick Radge has been buying and selling and making an investment for 26 years. He has "seen all of it" in terms of the markets. This useful consultant is Nick's inventory investors bible - Nick explains the straightforward maths at the back of profitablity. it isn't how usually you win, it is how a lot you win in case you win.Nick Radge is Head of study and buying and selling on the Chartist, Australia. he's satisfied to proportion this information that will help you develop into a greater, and eventually, a ecocnomic dealer. Nick Radge is the writer of hugely acclaimed Unholy Grails - a brand new street to Wealth on hand on Kindle http://www.amazon.com/dp/B007T97DJQ [C:\Users\Microsoft\Documents\Calibre Library]
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Additional resources for Successful Stock Trading - a Guide to Profitability
You cannot control the profits – only the market can do that. 29 However, you can control your losses and, therefore, you can control your average loss. Be pro-active in your trade management. If you can get the average win/loss ratio out beyond 4:1, you will be a very, very successful trader – regardless of the tools you use. 30 CHAPTER 3 - ENTRIES, FREQUENCY AND MIND-SET. Chapter 2 discussed the primary ingredient of profitable trading – getting that average win/loss ratio as large as possible.
Using an Excel spread sheet and our win percentage we can make some assumptions as to what is possible. For the purposes of the exercise, I'll use my humble pie example, where I expect to win around 50 per cent of the time. In cell A1 of the Excel spread sheet, enter that 50 per cent expectancy as 50. In cell A2, enter how many trades you would like to test the theory on. It's best to be conservative, so a large number such as 10000 is better than 100. Enter 10000 into cell A2. In cell A3, enter the following formula: =ROUND(LN(A2)/-LN((1-(A1/100))),0) Once you have entered this formula, '13' automatically appears in cell A3.
You can see that we have effectively skewed the numbers in our favour by simply tightening the stop. Imagine if we could have cut the risk on position two by 50 per cent again. It's basic maths, basic expectancy, and it is that simple (and removes the psychological impact). Remember, though, that the tighter the stop, the greater the chances of getting stopped out. Your immediate reaction here might be to focus more on reducing the chances of being stopped out. This means you are more focused on trying to be right rather than concentrating on the potential outcome if the trade is a winner.
Successful Stock Trading - a Guide to Profitability by Nick Radge