Saturday, April 9, 2011

Trading for Everyone by Adam Hamilton (Part 9)

So trading is awesome, everyone should trade stocks. Easy for me to say, right? What if you don’t have any money? Believe me, that’s not a problem at all. Almost every trader in the world started out with nothing, zero. Traders start small, trading a tiny amount they can afford to lose when trades inevitably move against them. But gradually as your knowledge of the markets, stock trading, your own emotions, and market sentiment around you grows, so too will your success. There are endless accounts of traders starting out with a few-hundred dollars and ending up multi-millionaires a couple decades or so later.

Starting out small is actually really important. If you start out trading with a lot of money, odds are you will lose it and get discouraged. The great majority of traders lose almost all of their initial capital at some point in their first year or so of trading. It is par for the course. But the hard lessons learned, and the skillset developed through those early losses, scale beautifully to any amount of money as your trading prowess grows. Even if you are blessed with lots of surplus capital, start trading small with an amount you can easily afford to lose. As your confidence and skills gradually grow, only then should you start trading bigger.

The amount traded is totally irrelevant. If you can earn a 20% return on $1000 in your earlier years, you can earn a 20% return on $100k or $1m as your capital grows. The critical thing is just to get trading, start small and start learning the lessons stock trading teaches. Get your greed and fear under control and grow your understanding of the markets and stocks when you have little on the line. This foundation is essential to help you thrive someday in the future when you are risking a lot.

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