On Monday, June 11th, I bought stock in Aluminum Corp China (ACH) at $34.23 a share and by around noon on Friday that week, it had jumped $7.88 a share. That move represented a 23% increase in just four days. Of course, I was moving my stop up behind the move in an effort to protect profit yet stay in the play as long as the stock was climbing. Obviously, this trade made me very happy and it reminded me of an email I had received from a subscriber several months ago.
In the email, the subscriber noted that my $10 Trader service had a high percentage of wins, but he was disturbed that many of the plays had only made a 15 or 20 or 40 cents a share profit. He wanted to know why I didn't send alerts on trades where I was going to make more than that per share. I laughed out loud when I read the question. Clearly, if I knew which stocks were going to make me more money, I would invest in them. The fact is that the 20 or 40 cent gains on cheap stocks often represented returns of 5% to 15% in anywhere from a few days to a couple of weeks.
When teaching classes, I frequently ask new students what they consider to be a good annual return and the answer often is 10%. The fellow who wrote was disappointed that I was only making that much in a month or less on many winning trades. Naturally, I would prefer to have all winners and have each winner provide a bonanza, but that is simply unrealistic. I (and almost every trader I have ever met) do have losers and not every winner is a big hit.
I suspect the subscriber was looking for a home run every time. He was seeking the holy grail of "get rich quick." My experience teaches that those who believe they can get rich quick in the markets are more than likely doomed to failure. One of the keys to successful trading in my estimation is to stay in the game. Manage your money so that no unsuccessful play will take you out of the trading business. Do not expect the huge win on every play; work to achieve profit. It is fine to have several small winners. The big gains will come at times as with my ACH trade, but they can't be realized unless you are still in the game. That is one reason why money management and cutting losses is so important. You may want to review my earlier article on money management in the archives and see how a trader who uses a proper reward to risk ratio and who manages his money appropriately can still be profitable even when less than half of his trades are winners.
The bottom line, I believe, is that trading, in order to be successful, must be approached with reasonable expectations. Try to "get rich steady" rather than "get rich quick."
Bill Kraft, Editor
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