Never let a trade turn into an investment

Author: Giles Coghlan | Category: Education

Investment or trade?

There is always something unexpected in the markets. Always something to generate a buzz or fear in investors, usually both. One of my trading maxims is this, 'unexpected events can, and do occur, in the financial markets'. Just thinking off the top of my head I can think of a number of central bank surprises, stock surges (GME, AMC & NOK), andmajor market divergences that have all been to a greater or lesser extent 'unexpected'.

Never go 'all in'

Investment or trade?

This means that you should never go 'all in' on a trade. I would say that it is generally a huge mistake to go in more than 10% on any single trade. For my trading I like to keep total exposure down to 1% in most circumstances. Why should you avoid this? Because 'unexpected events can and do occur'. The thing about the unexpected events is that you can't easily see them coming. Also, you tend to want to go 'all in' when you are in a fix and are looking for that 'one hit' to get you out of a hole. If that is you, watch out.

Remember the SNB

Remember what happened in 2015? In January the SNB finally realised it was useless for them to keep trying to hold the EURCHF 1.2000 peg. The results were devastating. So this is a warning against 1) letting a trade turn into an investment and, 2) over leveraging. To trade for your whole life you need to avoid both. If you got lucky, realise the luck and don't repeat the mistake. If you got caught out learn the lesson, dust yourself off and start to rebuild. If you are smart you will be rebuilding as a wiser person. 

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