So many people make the cardinal trading mistakes and lose everything – wife, girlfriend, kids, house, the lot. Don’t fall into the trap and make the same trading mistakes.

One of the biggest aspects of becoming a successful trader – and most things in life – is that of learning from your trading mistakes. I remember a quote from JP Morgan that has stuck in my head ever since hearing it as a novice trader. Write this down and implant it in your brain for the entirety of your trading journey.

“To be a money master, you must first be a self-master.”

Mistakes will inevitably happen in your career as a trader. The same applies to anyone taking on something new. For example, when most people start a new job, they need lots of hand-holding until they are comfortable with their new role. Trading is no different. Unfortunately, most traders don’t have that ’somebody’ to look over their shoulder; there is no one to guide and correct them when they have made a mistake. The trader, for the most part, needs to look at her own trading patterns and be self-correcting. This can be a tall order, especially when you don’t realise you have done anything wrong!

There are two types of mistakes: mistakes you have made and mistakes made by someone else. The fact is, it’s human nature to link more pain to the mistakes that you have made yourself as opposed to the mistakes of others. As a result it’s easier to learn from your own painful mistakes than the mistakes of others.

Mindful of this, I encourage traders to think of the first one to two years of their trading career as an opportunity to learn from your own mistakes. The more mistakes you make initially, the more you will learn – but only if you consider them as learning experiences as opposed to events you beat yourself up over!

The 2 Biggest Mistakes of My Trading Career

1. Trading Without A Plan

We all know a well-designed trading plan is the essential element of any good trader. The plan is there to instruct you what to do, when to do it and how much to do it with.

In my opinion, unless your plan is written down, you don’t have a plan. A plan will make you trade consistently and help you to minimise your losses while magnifying your gains.

2. Trading Without A Coach or Mentor

Ask yourself this: If you want to learn a new language, how would you get started? You would most likely go to a class and learn from somebody more experienced.

In a similar manner, if you wanted to improve your trading skills, you should find a coach. Trading is generally a lonely vocation. What’s more, due to the solitary nature, many traders find it difficult to improve their skills.

Coaches are necessary to help you identify where you are going wrong and steer you in the right direction. The fact is, all top performers have coaches. Take Tiger Woods, for example. He’s considered the greatest golfer of all time and yet he still has a coach. Why do you think that is?

Coaches are required for those who wish to perform at their peak. I believe five hundred dollars spent on improving yourself through a trading coach is much better than losing $10,000 in the markets. You can guarantee you don’t make the silly trading mistakes that so many other successful people before you have.

Learn About The Stock Trading Systems You Dream About! Learn how by visiting www.trading-secrets-revealed.com.

Before I teach you the best trading strategy I’m going to share with you the worst trading strategy of all time. There are virtually a million and one strategies that can be applied to all aspects of trading. I’m going to share with you what I consider to be one of the worst if you consider yourself as a trader.

You must be wondering why I would want to spend time illustrating the worst trading strategy around. It’s simple. By showing you how it works (or, in this case, doesn’t work), I hope to show you clearly what not to do while encouraging you to do the exact opposite.

To Average Down is to throw your money right down the drain and most possibly the worst trading strategy of all time

However, for the beginner, averaging down seems quite logical but it is fundamentally flawed. Many people have become stuck in its claws and have lost substantial amounts of money because of its apparent logic. Do not be one of them!

Averaging down is the process of buying more and more units of a falling stock in a desperate attempt to recoup your losses and reduce your effective buy price. When you look at it closely, it’s really just throwing good money after bad.

The mental state behind this type of strategy is denial. People believe they can reduce their initial entry price by continuing to buy more as the stock’s price falls away. It’s the modus operandi of distressed traders, traders in a panic. As a strategy it is hardly ever effective. To make matters worst, you’ll magnify your losses if the stock keeps dropping.

Please understand, just because it’s cheap now does not mean it’s not going to get any cheaper.

This is how the strategy works in action. Let’s say you bought 2,000 shares at $50. Step one, don’t have an initial stop in place. Step two, watch the price fall to $40 and do nothing. Here comes the stupidity of this strategy – step three, buy another 2,000 units at $40 to lower the average cost per unit already purchased. Your average cost per unit would now be $45.

It gets even worse. Price may fall even further and the novice trader will again buy more units to reduce the effective average cost per unit. The effect is such that he buys more and more into a stock that’s losing his money.

Now, imagine this strategy being applied to a portfolio of stocks. What ends up happening is that all your trading capital is allocated to the worse performing stocks in the portfolio. The result is, at best, a disastrous underperformance versus the market.

If a trader averages down and he is using margin, then you can only imagine this would magnify those losses even further. The effects can be devastating. So, hear me now: never average down.

The best trading strategy works the exact opposite. To maximise profits you should put your money into compounding successful stocks for it to work.

Absorb some lessons from admired trader Marty Schwartz and take heed of his advice:

“I’m more concerned about controlling the downside. Learn to take the losses. The most important thing about making money is not to let your losses get out of hand.”

The best trading strategy recognizes that if you control the downside with comprehensive money management then profits will be yours soon enough in the long run.

Want to learn more about Stock Trading Systems? Visit www.trading-secrets-revealed.com today.

Be warned, if you fail to implement an effective system for trade money management, it’s highly unlikely that you’ll achieve any noticeable success. Essentially, money management is vital to any trading business.

Let’s face it; being successful in the markets is not something that just happens. It takes a lot of hard work, a solid plan, discipline, and a strong will to succeed. Contrary to what you may believe, traders aren’t born with a gift. They’ve simply dedicated plenty of time to learning, as can anyone else. As Dr Van Tharp says, “Successful trading is all about psychology and mindset”.

For example, let’s say some of your trades aren’t going as planned. Many traders, new traders in particular, would let their losses run in the hope that market conditions change before they loose everything. While this may seem like the best thing to do, the number one rule of trading tells us we should be doing the exact opposite – “cut your losses and let your profits run”. Of course this may sound obvious but please believe me, when the pressure is on; you’re going to need a good trading psychology to see you through.

You need to be capable of going against the grain if you’re to win in trading.

You need to realize that without proper trade money management at the centre of your system, one bad trade could spell absolute disaster. Sure, a perfect system should always be 100% accurate but I can assure you they’re not always accurate, so yes, one loss could mean you loose everything. Contrary to what you may have heard its trade money management that makes a solid system, rather than a market full of money making opportunities and magical trade entries. The bottom line is; trade money management protects your capital.

Given the extreme importance of trade money management, I would’ve expected to see many courses dedicating whole chapters to the subject and yet I’ve never seen one that does.

The fact is, there are plenty of stories which can attest to the importance trade money management so I’m obviously not the only one who knows about this. It’s just unfortunate that so little is said about it because trade money management needs to be applied, irrespective of what market you’re involved in, or which method you choose to use. The bottom line is; there are simply no exceptions to the rule, regardless of the system you use.

In the vast majority of cases where traders are under-achieving, the primary reason is lack of discipline, with regards to the rules of meaningful trade money management. This is hardly surprising though because actually applying these rules, is a far cry from simply being aware of them.

No matter how far down the road you are, a single change of strategy can mean the difference between mediocre results and explosive results.

Essentially, you need to thoroughly understand what you’re doing and also why you’re doing it. Having a rock solid system in place means you’ll no longer be dependent on gurus and tips as a source of information.

Essentially, you need to be confident that when you decide to enter into a trade, you have a well thought out exit strategy in place, and that risks have been tailored accordingly with regards to your risk tolerance. This not only allows you to manage your portfolio in as little as five minutes each day, but it also ensures you can sleep peacefully at night.

Before I end off, I just want to point out that I wrote this article essentially as an introduction to trade money management. The bottom line is; by implementing masterful trade money management, you will reach all your goals. In fact, simply following all my future articles and applying what you learn, you’ll soon be able to master the markets using excellent trade money management.

Build Killer Stock Trading Systems You Dream About! Learn how by visiting www.trading-secrets-revealed.com.

A covered call strategy is great, as it can allow you to get your income back, and put it to work elsewhere quickly. In addition, time value is certain, and covered calls will allow you to collect this value while speculators betting on a stock rising beyond the option price plus what they paid for the option will have to pay this amount to you no matter what. Even if the stock does go beyond this point, you don’t incur a loss; instead, you miss out on potential gains. This can cause a covered call strategy to be more stable. You ultimately want the stock to expire at the money as this will allow you to collect the full premium, and still own the stock. Anything above this and your gains of your stock will cover the loss of the call and your gain will ultimately be the same. However, if it goes higher, you will have to repurchase your shares at a higher price, although selling another call against them will result in a higher premium.

Some covered calls will yield a 10% monthly return based on it’s time value premium that you collect, meaning that in 10 months you will have your initial investment back if you can successful receive the full time value. The risk is not that the stock goes up in value and that you miss out on potential gains, as the yield will be roughly the same after appreciation, but that the stock goes down dramatically in value. However, you cannot lose more than your initial investment minus the full premium. This is a major point that critics of the covered call strategy often miss, as they say it has “the same risk profile as selling naked puts.” This means that if you sell a put you are un-hedged, and if the stock goes to zero, you are also limited to the loss of the strike price minus zero times $100. Where a put owner will gain $100 per share ($10000 per contract) if a $100 stock goes to 0, a put seller will have to pay the put owner this $10,000 per contract. Selling puts is dangerous because people generally do not manage money well. The top 10% of people own the other 90% of wealth generally because the top 10% have learned to manage their money better than the other 90%.Selling puts is dangerous, because if you sell a $100 put for $500 your gain is capped to $500 per contract for a given length of time, and your potential loss is $10,000. Now a covered call owner may be capping his gain to lets say $500, and if the stock goes to zero, he is also going to potentially lose $10,000. So why is a covered call generally less risky? The reason why is that unless the seller of the put has $10,000, then he risks going on margin. In addition to actually having to have put up what the buyer affords to risk, The buyer of the stock not only is required to have that 10,000 before he can buy 100 shares of $100, but even someone with a limited understanding of risk management will do at least something to manage risks, even if it’s still investing a high percentage such as 20% of the income that loss is limited to 20% of the portfolio. Technically that buyer should risk only a smaller percentage of his capital. A seller of a put receives $500, but to collect $500 and have to leave $50,000 to the side doesn’t seem naturally as rational. People that invest in a covered call buying a stock for $10,000 and collecting a $500 premium and invest the remaining $40,000 will be risking less than someone who sells a naked put, but invests the remaining cash. Of course the reason is, the put seller has to have $10,000 to cash if the stock goes to zero.

However, there’s an even greater difference. In the event of a loss when the stock doesn’t go to 0, the covered call seller experiences a paper loss; where as a put seller experiences a real loss. The covered call owner might put up $10,000 and that $10,000 suddenly is only good for $8,000 and all he has received is the $500 premium for the covered call. However, if this person has done the research and determined that the stock is undervalued, and is currently in a panic due to margin calls and forced selling, and that the fundamentals are good, the covered call owner still owns the 100 shares of the stock that they determined to be worth $140 at $100. Technically the put seller could choose to buy that same stock at $100 which is now worth $80, and put up the money rather than take the $20 per share loss. However, the covered call owner has likely researched the stock, has determined it to be undervalued and intends on owning this stock anyways. The put seller doesn’t want to own this stock, instead expects the stock to remain neutral, and just wants to collect the $500. If the covered call owner was wrong, that means the stock goes lower than he expects, however that doesn’t mean that the stock still wouldn’t be undervalued even more so. If the put seller is wrong, the put seller will have to buy 100 shares of an $80 stock at $100. It may just seem like semantics, but the covered call owner already has bought the stock where as the put seller may not really believe he has to buy the stock. A put seller gets paid to buy the stock at a set price, where the covered caller gets paid to own the stock. Psychologically, it’s a lot easier for a put seller to say “well I’m a good investor I think, my bet is probably right, I don’t need to worry about the fact that the stock might drop in value because I don’t think it will. I don’t need to do more research, and oh, by the way, this extra $10,000 on the side, I can invest it elsewhere because I’m a good investor, and I’m not going to lose. An over confident put seller can lose everything in the account and then some with even a drop from $100 to $80, where as a covered call owner who is over confident will probably only lose a maximum of the amount he owns in that individual stock minus the price of the stock, and that’s if the stock goes to all the way to zero.

In many ways they are a similar strategy betting a stock won’t go up beyond a certain point, and that it won’t go down beyond a certain point. But a person who writes a covered call will be forced to have the money to pay for it and on maximum in a margin account that person can only go on 2:1 margin. If a covered call buyer with $10,000 risked $20,000 they might need to transfer some money from their bank to their stock account and come up with $10,000

If someone sells puts, they are not technically on margin until a major loss occurs, however, if they sell 10 covered calls of a stock at $100 at $500 each, they risk losing $100,000 if it goes to zero. Put sellers most likely think that has a low probability of happening. Covered callers may think the same thing is true, the difference is, covered callers can never bet more than twice what they have even on margin, and most people won’t go on margin anyways simply because they don’t have the account set up to. Put sellers will usually HAVE to have a margin account to sell puts.

Selling puts requires a more sophisticated understanding as well, and when lost in the technical, I believe it’s easier to forget about what you are betting on happening. If you sell an out of the money covered call, you are betting on it going down less than what you received for the option, or going up to the strike price (or higher, but gain is capped). If you already own a stock, it’s easier to understand that you are trading upside potential for income, where as put sellers are risking money they don’t have committing to buying a stock at a certain price no matter what betting that a stock will do the same thing essentially. But leveraged buyers and sellers are generally not the type that likes to have money on the sideline.

Naked call seller as are collecting income but if the stock goes up, they have unlimited risk since they do not own the stock that will cover them in case the stock goes higher. Selling a naked call could potentially result in unlimited margin. However in order for a stock to go unlimited gains, it has to have an unlimited amount of money put into it. This does not happen, especially to the largest of large cap stocks that are already heavily owned on heavily leveraged companies… However, large amounts of cash reserves still are needed, as large caps still appreciate in value, sometimes significantly. Being un-hedged and selling any sort of shares “naked” is not recommended. In theory there may be an identical hedged strategy, but in practice it just doesn’t work out the same way.