Hi peeps, it's been awhile since my last writing. I've been occupied with assignments, and catching up with my studies, that I don't even have time to watch the market on a daily basis. But nonetheless, I'm still trading, and I take 1-2 hours of my leisure time on weekend to analyse the market, and see if there is any buying opportunity.
Today, I will like to give you one of my trading principle, I called it 'The 3% principle".
There is saying that goes like this: 90% of investors lose money in the stock market
There is also saying: More millionaires has been made from the stock market than from any other sources.
Why almost all of the people who trades in a stock market lose their money? and how can you avoid yourself from becoming the 90%, and what can you do to be in the 10%?
Most of them lose money because of their greed, they have no patience, and most importantly, they don't know what are they doing i.e. they don't have solid and sound trading plan. They want to get rich quick, and don't bother to invest for the knowledge. If you are going to stock market with this kind of behaviour, I guarantee, you will lose money as soon as you got into it.
Enough with the lecturer, let's get back to the main topic.
So what is the '3% principle'?
Most people who get into stock market wish to get rich quickly, and whenever they entered into position, they want their stocks to go up very high as quickly as it can. Some even ridiculously expect that their stock goes up by more than 10% a week! Whenever the stock doesn't goes up as they expected, they become dissappointed, and wondering why is it so hard to make money in the stock market.
The reason is, their expectation is too high, and when you had too high expectation, you can easily become dissappointed. And when they become dissappointed, they become exhausted, and lose patience, and when this happen, they will either trade blindly on hot tips, or just get out from the market.
Now let's try to set our target to 3% a week. Why 3%? Because this is an achievable and reasonble target. Many stocks can easily go up by 3% a week. You can start tracking your favourite counters to see if this is true.
So now you have target to make 3% gain per week on your capital. Let say you start with RM10,000, and you plan to trade for 50 weeks in your 1st year of trading. By the end of 1st week of trading, if you achieve your target, you will have RM10,300 in your account. Next week on monday, you start again with, but this time with bigger capital, RM10,300. And by the end of your 2nd week of trading, you will have RM10,609. If you manage to consistently achieve this target every week for the whole 50 weeks of trading, by the end of year, you will have RM43,839, which 4.38 times your intial capital at the beginning of the year.
Going into year 2 of trading, you will start with RM43,839. If you still manage to replicate your success in your 1st year of trading, by the end of year 2, your equity will be RM192,186!!
If you manage to consistently achieve the target 3% a week, trust me, by around week 9-8 of your fourth year of trading, you will get your first million! And by the end of the year 4, you will have RM3.6 millions in your account!
If it's that easy, why there are still many people losing money from the stock market? As I said, people become greedy when fortune comes to them. Some people, when they start making money, they tend to take greater risk. I have known some people, who in their 1st year of trading, they use this 3% principle. At the end of the year, their equity grows by 4.38 times. Then in second year, they start to think that since they're making money, why don't they start investing in high risk stock, which will give them more return.
They start to trade carelessly, meaning, they don't do their homework on the counter as much as before. And when they are losing, they let their ego controls them, since they used to win before, so they can't accept the losses. They did not cut loss, believing that the stock will move back in their favour. If the stock did move back up, it's good, but if it's going down, their losses will be bigger. That's how people lose money, they forget their trading plan, and they let ego controls them.
Ok enough for today, I hope you guys get some idea on how to plan your trade from today's reading. Below is the link for the spreadsheet calculation, which shows you how your equity will grow if you follow this principle. This is not a sure rich principle, but I find it very reasonable for my trading. The 3% principle does not only apply for gain, it is also applies for my cut loss. Each time I'm making losses, I'll make sure I don't lose more than 3% of my equity. The hardest part is to control your ego, and to be discipline.
Ciao.
