Trading is a business. And like any business, you need a goal of what you want to make and a plan to hit that goal.
When I was running my hedge fund, that was the way I did business. I had clients write down a number on a piece of paper, and that’s what I made for them.
Similar to those clients, anyone who’s serious about trading should have a goal of what they want to make. A number on a piece of paper that they’re going to make in one month, two months, or whatever time frame it may be.
And there’s one specific way to achieve that.
You should always look to put a P (profit) on the page…
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It doesn’t matter if the profit is small. If you have it, you take it. That’s the only reliable way to hit your trading goals.
Most traders want to make a specific amount of money… but they want to get there in the fastest way possible. So they overleverage their positions, load up on risky bets, and get blown up.
That’s a fast way to become poor, not rich.
The smart trader – the one who’s in the vast minority – is taking small profits every single day.
If you keep doing that over and over again, you’re going to accumulate a larger base of capital and can afford higher levels of risk on occasion… which inevitably leads to bigger rewards.
Trading this way means your winners will outweigh your losers. You won’t be all-in on one high-risk idea. That’s the harbinger of death in the trading world.
It seems obvious and easy to follow, but most new traders don’t think this way…
First, they get attached to their losers. They sit on a losing position, hoping it will eventually become profitable… but it usually doesn’t.
And second, they never take a profit unless it’s a grand slam. They’ll keep pressing on a winner, even when they’re losing money overall. They think that’s the only way to be successful.
But that’s the wrong line of thinking… and it’s the #1 pitfall new traders tend to fall into.
They don’t understand how to size their positions according to how they’re trading. They don’t earn their risk. And understanding how to do that is the most important thing in trading…
I’ve learned many of these lessons the hard way. Back in the 1980s, I started working on the trading floor of the Chicago Board Options Exchange with $10,000 of my own money.
Larry (right) on the floor of the Chicago Board Options Exchange in the mid-1980s
I would have a sum of money to trade and grow. But I kept losing all of it.
At the same time, my buddy Andy was making money every day. I couldn’t figure out what he was doing differently. I called my mom and told her how Andy was making so much money, and I was losing all of mine. She said, “Just do what he’s doing.”
Here’s what he was doing: Letting profits slowly trickle in.
He wasn’t going all-in on a risky trade idea. He was slowly but surely building a strong base of capital.
In other words, putting a “P” on the page no matter what.
It took me a long time to grasp this concept. I chewed through all of my money probably two or three times by making silly mistakes: things like being too impulsive, going for the home run, or holding onto losers too long… All the basic “no-nos” of trading.
But each time I chewed through all of my own capital, I learned something.
I got closer to learning how to let go of losers and avoid impulsive trades. Then, I got picked up by another firm, and they gave me a shot with some money to trade. Gradually, I began to figure out proper money management.
I was lucky because I made my mistakes early on in my career and was able to learn and bounce back.
The reason I’m telling you all this is to inspire you. Anyone can start small and become a big-time trader – especially if I could…
It all starts with learning how to slowly put profits on the page until you “earn” the ability to take on more risk.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
