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How to make money consistently?

Published on February 24, 2007

How to make money consistently?

February 24, 2007

(For details pls visit www.OptionPundit.net)

How to make money consistently?

This is an ever intriguing question. My two cents on this, the answer is very simple in theory but extremely hard practically. The answer is a disciplined, well-defined investing approach (several versions, paid or unpaid, on how one articulates it but the essence is same). Most traders and investors on the wall-street, stocks or options, understand the basics and know the numbers (except few who might be trading for fun or excitement). There is no rocket science behind the stock investing but still this is one of the most complex things. I ponder over this time to time. Why less then 5% traders make money? Why simple investing into index fund (can be purely mechanical) outsmart most mutual funds? Mr. Warren Buffet’s investing method is no longer a secret, numerous books have been written, and in fact his holdings are also disclosed and made public. There are several screeners that can help you find the companies that might be potential candidates for Buffetology (Check out OP’s toolbox for screeners). Thousand’s of books have been written but why there is no other Warren Buffet so far (there are few arguably running candidates for that race though like Mr. Eddie Lambert or Mr. Joel Greenblatt, but my point is different)? Why (leave aside the reason that they may have lot more information or influence that average retail investor may not, but that’s not really the point)?

In my opinion, the reason lies in “greed” and “fear”. One of the two strong emotions that at times rules brain. When there is inflow of the money to the trading account as trade makes money, one doesn’t want to get out because the trade is making money (have you heard…let the winner run….but after a while even winners are also tired and need pause and sometime collapse too). Similarly when the trade is losing money one might be either “wishing” or “panicking”. Wishing, that it will come back and make money or “panicking” when there is first sign of “wash and rinse”. I have been in that camp where speculation was riding high, so high that I wanted to double my money every single trade and every single day. Unfortunately I did that 1 time, 2 times, 3 times and time and time again and proved that it was possible. To the tune that I made over 1200% in one trading day to give it all back the next morning. Fortunately, I proved this also 1 time, 2 times, 3times and time and time again. No, Neither I am about to recommend some magic formula or wonderful stock option trading tips or software or advisory nor I am saying that I have become a saint, I am still a human being who is driven by emotions but I think now I have started to accept the reality that making money is not easy. It takes time to learn craft and tone any money making system (emphasis on System) be it a neighborhood shop or option trading.

Net, I would like to leave it open to the readers to think hard? Are you making money? If yes, what is working and why and is meeting my time and effort objectives? If not, think again, what’s not working and why? I thought about some resolutions for my trading style and shared with OP readers, here is the link for reference (New Years Resolutions).

Wish you all profitable trading, OptionPundit

6 Comments

  • OP,
    Great article! Yes, greed and fear are 2 emotions that are hard to manage when trading.

    And like you, I agree that making money from the market is not that easy, at least not as easy as I initially thought it to be, lol!

    Trading road is a long journey and every experience in the market is a lesson, good or bad.

  • ODA 125 says:

    O.P.,

    Awesome article!!! You nail it to the very heart as to why most
    never make consistent returns while others will experience them
    day in and day out. I used to be in that camp but NO MORE! I
    learned the hard way and returned to the basics and begin to
    realize steady, consistent gains without the emotional roller-
    coaster ride i had been on. Thanks for your time and desire to
    teach what you know to the one who will focus.

  • Thanks for pointing out how hard it is to separate the emotional aspect from the purely, rational, logical aspect of trading! Abandoning winners is one of the hardest things to do, but as you point out, those winners can quickly turn into losers within 24 hours or less.

    Personally, I think that’s what makes trading screens and strategy screeners for stocks and options so fascinating – by focusing only on numbers and symbols, you can escape some of the emotion of dealing with certain names. It’s much more of a “black box” approach that can turn up some interesting companies. Anyway, great stuff!

  • Brian says:

    Great article! Discipline, and the fortitude to stick with it day after day, are the keys. And the realization that successful trading is not glamourous or exciting. In fact, it gets rather mundane. But the mundane wins in the end (e.g. The Tortoise vs. the Hare).

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