“An expert is a person who has made all the mistakes which can be made in a very narrow field” – Physicist Niels Bohr
No matter how much we read, listen and study in any field, including trading, we will make mistakes, lots of them. Trading is like any other business. The real skill and success only comes after a lot of experience. One of the great things about trading is, unlike most other businesses, no mistake should be very costly. Trading is a business where we can test our knowledge and strategies with very little capital.
I don’t know of any other business where the exact same strategy can be just as effectively tested with a few hundred dollars of capital as with a few million dollars. We can test the same strategy and gain the same learning experience with 100 shares or one futures contract or a mini Forex position as we can with a position 100 times as large. We can literally test just about any trade strategy with just risk a few 10’s of dollars.
Traders have the opportunity to become an expert by making all of the mistakes in a narrow field as Niels Bohr described, with very, very little risk. Why do so many traders go bust before they have made enough mistakes to become an expert? It is almost always because they risk far too much for their account size on any one trade. You’ve been told this over and over again. I repeat it over and over again in High Probability Trading Strategies – limit risk, preserve capital. I even give you a simple formula that will calculate the maximum position size for any trade for your account. And let you know in no uncertain terms that if you exceed the maximum position size you are doomed to failure, and deservedly so. I won’t beat the lesson to death again here, but leave you with this –
If you don’t take advantage of the unique opportunity to become an expert at trading by learning with controlled and minimal risk, you deserve to go bust. This lesson and opportunity isn’t just for beginners. No matter how long you trade, you will constantly be learning new lessons by making new mistakes (and even repeating old ones now and then). But the fact is, not only should you never go bust but you should never have an unacceptable draw down if you control and minimize the risk with each trade decision.
Helpful reminder that it shouldn’t cost all that much to refine your trading skills all you need with mini-sized positions; and as opposed to paper trading, you get to learn how to manage your emotions as well. You might even make a buck or two. But it’s important to remember to keep an eye on expenses, especially commissions, which, percentage-wise relative to your profit potential, will represent a much greater hit.
Bob, you mentioned in your book that a spreadsheet with the calculation of the POSITION SIZE can be downloaded on your website. I checked all links but couldn’t find it. Please let me have the link to it. I’m sure the other readers would be interested to get it too.
Thanks a million.
Once again I apologize for not having the Excel position size calculator available on the web site. I jumped the gun a bit on that. We have one for our DT Stock/ETF Report subscribers that is only applicable for unmargined stocks with minimal instruction. I decided it would not be appropriate to put it on the site for book readers until we upgrade it with better instructions and make it useful for Forex and future traders as well. Should have it available by the end of summer.