High-Risk Business
As a share trader you can make – or lose –
thousands of pounds in seconds. It is not always so
extreme, and sometimes may be more so. You can take
a long position to gain from rising markets or a short
position to gain from the fallers. You can hedge your
main position.
On a day-to-day basis, stock prices do not necessarily
gravitate towards book value, as they do over time.
As a trader, you cannot rely on fundamentals. The
share price is driven by mass buying and selling,
largely based on sentiment. On this basis, Gerald
M Loeb, a great US trader of the early 20th century,
said that accountants made bad traders and psychologists
good ones.
How far you succeed depends more on you than on market
conditions. If you apply good money management (covered
later in this module), you can win, even if you have
entered more losing than winning trades. To run your
winners and cut your losses is truly a secret of success.
It is on the early learning curve that you are most
likely to lose money. Your early efforts will also
give you the opportunity to assess whether the trading
game is right for you. You will risk losing not just
your money but, with it, some friends, status and
perhaps your self-respect.
See the risks as temporary because, if your approach
is right, you will later gain any losses back and
much more. In his classic poem If, Rudyard Kipling
wrote: |
